An update on the impact of COVID-19 on R&D tax claims
The government introduced a wide range of funding support in 2021 to help businesses respond to the impact of Covid19. Some of these might affect your R&D tax claim.
18 March 2021
1 - Offset rules
Normally, if you are in any form of arrears with HMRC then any R&D claim would be offset against your arrears.
However, we have recently experienced that in some cases, companies who have a Time to Pay Arrangement in place with HMRC could actually be successful in getting the claim money paid out. For example, in one such case, the claim money was automatically allocated against the arrears but after a call with HMRC, the money was released.
This is not however always a given. We find that HMRC may be more willing to entertain paying out claims where companies have taken the proactive step of doing something about any arrears they might have with HMRC.
This is all the more relevant given the recent VAT deferral scheme, (where businesses have the option to defer VAT which fell due between 20 March and 30 June 2020) which could mean VAT arrears could be lurking around for a while.
2 - Furlough payments (CJRS)
Employees placed on furlough are not permitted to work during any furlough period. Since R&D tax relief is activity-based, any staffing costs associated with the period when an employee was furloughed doesn't qualify as staffing costs for R&D purposes and is excluded from the claim either under the SME scheme or the RDEC scheme.
This includes both amounts directly subsidised by the government under the CJRS and ‘top up’ amounts funded by the employer.
Please, bear this in mind for your next conversation with your dedicated consultant, who will be asking you for details of furloughed staff to make sure they are excluded from your R&D claim. Things are slightly more complicated when it comes to partial furlough situations, but these can be reviewed on a case-by-case basis.
3 - Grants or government support
Business support grants such as the £10K Small Business Support Grant Scheme, wouldn’t normally be attributable to an R&D claim so would have no impact.
There are a number of regional support grants available and the majority of these are aimed at helping businesses to maintain business as usual activities. Generally, these wouldn’t impact on an R&D claim, however if you were an early-stage company developing something then that would be considered your business as usual, so it would be applicable then. Also, it is worth remembering that, should the grant be considered part of the R&D claim, the claim would then be processed under the less generous RDEC scheme.
Our advice is to provide us with the grant documentation, and we can assess whether or not that will have a bearing on any R&D claim.
4- Processing of claims
Still operating as normal and in line with guidelines pay-out times.
5 - Going concern
Normally a pre-cursor for a claim but there may be some leeway on this requirement. HMRC are monitoring the impact of the pandemic to see how this affects companies’ ability to meet the Going Concern requirement, so that they can adjust their reaction accordingly, if necessary.
We hope the above has clarified a few things on how Covid19 might impact your R&D tax claim. The best thing to do is get in touch with ABGI, we can take a look at your individual circumstances and advise on the best way forward.