The Impact of the Coronavirus Crisis to the R&D Tax Credit Scheme

The coronavirus and its impact on the R&D Tax Credits scheme

The interruption to businesses caused by the Coronavirus (COVID-19) crisis has raised concerns among companies that have recently filed an R&D claim or are planning to do so in the near future.

Businesses are looking for clarity on issues such as processing and payment delays, conflicts between the R&D scheme and other funding schemes and other topics.

HMRC have released the following information:

HMRC PROCESSING TIMES

The concern over delays in payments of R&D claims is understandable. Many companies have been negatively impacted by the crisis both on an operational and sales level and need access to additional funds more than ever.

The good news is that currently, HMRC are able to maintain their target of processing 95% of R&D claims within 28 days of being filed and they are prepared to invest in additional resources if the need arises.

We are in regular contact with HMRC so if you would like to get further updates on claim processing times in the coming weeks, let us know and we will gladly send you our most up-to-date information as we get it.

LATE FILING DUE TO OPERATIONAL DIFFICULTIES

If businesses are experiencing operational difficulties due to the coronavirus that will prevent them from filling an R&D claim on time, then HMRC have advised they will be sympathetic to this. They will consider giving extensions to claims that are filed late providing they meet the criteria found here in their Statement of Practice 5/01.

For example, if employees who are key to the R&D claim preparation were absent or ill due to the coronavirus in the period leading up to the claim deadline, HMRC are likely to grant an extension if it’s required.

CBILS FUNDING AND R&D CLAIMS

Another question that has been raised is:  Can a company apply for a Coronavirus Business Interruption Loan (CBIL) and also file an R&D Tax Credit claim at the same time?

One of the requirements of claiming R&D Tax Relief under the SME scheme is that no other Notified State Aid is received for the same project.

HMRC have advised us as following:

“The Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19. Since the measure is a fully notified aid, the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts.”

So, if a loan were to specifically state, for example, that it was made to fund an R&D project, we would expect the company to be considered to have received a notified State aid. In that situation SME relief would not be available. The question is: how does HMRC intend to treat loans where nothing is mentioned either way?

Our advice therefore is that if the loan is not for a specific R&D project, then this should be made clear in the loan application (that it is for general business operations) and also contemporaneously documented appropriately.

Examples could be:

  • Board minutes stating that the loan is for general business operations and not for R&D
  • A ring-fenced bank account for the loan funds

If the facts show that the CBILS loan is for general business purposes and not spent on project costs, there should be no problem with claiming for the project.

Note also that an SME company can also claim under the RDEC scheme and apply for CBIL funding without any concerns of the two conflicting, although the benefit is much lower at 9.72% for RDEC claims, compared to 24.7% for profitable companies and 33.35% for loss-making claimants under the SME scheme.

If your need any further advice, please contact one of our team members. We will be glad to offer our advice or point you in the right direction.

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