The Government has provided a raft of measures to support businesses during the COVID-19 pandemic. Although these measures will have been welcomed by many SMEs facing cashflow difficulties in recent times, it could have a knock-on impact when looking to claim R&D tax relief further down the line.
Two of the support measures brought in by the Government include the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), both of which are treated as notified state aid. The SME R&D tax credits scheme also comes under the notified state aid classification, as it is restricted to a specific group of businesses.
One of the conditions when claiming state aid, is that you can only claim one form of notified state aid throughout the duration of a project. This is the case even if that grant, or loan in this case, is paid back prior to claiming R&D tax credits. Therefore, if a loan is taken by the business under CBILS or BBLS to fund an R&D project, it will not be possible to then make a claim under the SME R&D scheme in respect of that project. The company could still make a claim under the Research and Development Expenditure Credit (RDEC) scheme as this is not classed as notified state aid, but it would be at a lower rate of relief.
Further, if R&D tax credits have already been claimed in respect of an ongoing project, then it would not be possible to use money received under CBILS or BBLS to fund the project as this would be in contravention of state aid rules. Many businesses may unintentionally have breached the rules without being aware of the interaction of different forms of state aid.
Where possible, any money received under CBILS or BBLS should be allocated to non-qualifying R&D activities and expenditure, however, we appreciate that for some businesses this may not be feasible.
Similar issues may also arise where certain government grants, which are also treated as notified state aid, are utilised for R&D expenditure but hence would preclude the company from making a claim under the SME scheme.
If you would like to discuss how the interaction of the different schemes could impact your eligibility to claim R&D tax credits, our innovation tax specialists would be happy to assist.