Coronavirus Business Interruption Scheme Loans
Companies that take out a loan via the Coronavirus Business Interruption Loan Scheme must ensure they are aware of how it may impact on the size and scope of their R&D claims.
A Coronavirus Business Interruption Loan (CBIL) will be classed a notified state aid. This means that any CBIL funds used on R&D may be restricted (for SMEs) to the less favourable RDEC scheme. In practice this means the “cashback” from an R&D claim could be reduced by as much as 23p for each qualifying pound spent.
Documenting the purpose of the loan when making a loan application and then keeping records and/or segregating funds is recommended, to prove the source of funds used for R&D costs and avoid a restriction on a future claim.
Furloughed Employee Costs
It will also be the case that monies received under the Coronavirus Job Retention Scheme for furloughed employees who would usually carry out R&D will not be claimable in an R&D tax relief claim. Given that furloughed employees are not allowed to work, they will not be carrying out R&D activity in the furloughed period and so their salary (including any discretionary top ups on top of the 80%) should not be included in an R&D claim.
Businesses are recommended to document the time spent by each employee on R&D so staff costs can be split accordingly.
Small Business Grant Funding
The £10k grant for businesses in receipt of Small Business Rates Relief or Rural Rates Relief is defined as state aid. If the funds are used to pay for an element of the R&D project, the R&D claim will be restricted in respect of the amount of these funds used. An RDEC claim may be possible.
If some of the £10k grant funding will be used on R&D, then it is important to document the amount spent on R&D, in order to avoid the full £10k being restricted to an RDEC claim.
Retail, Hospitality and Leisure Grant Funding
Businesses in receipt of the extended retail discount will be eligible for £10-25k grants per property if its rateable value is less than £51k. Once again, this is defined as state aid and using these monies to fund R&D expenditure will limit an R&D claim.
Get in touch if you’d like to discuss any of this further.