For businesses big and small, the impact of the coronavirus pandemic has placed considerable downward pressure on the supply and demand of goods & services and has caused severe disruption to all parts of the UK economy. Our thoughts are with all our clients at this time, especially those whose businesses have suffered from lockdown and the continued economic turbulence. The Government’s Coronavirus Business Interruption Loan Scheme (CBILS) was launched to provide financial support to those entities whose businesses have become unviable or have been adversely impacted by the coronavirus. Launched on 23rd March 2020 and classed as ‘notifiable state aid’, CBILS had attracted over 100,000 [applications by the end of June 2020 and the scheme continues to offer businesses, and their employees, a financial bridge to weather this black swan event. The effect of CBILS and bounce back loans on R&D tax relief eligibility is a common question asked by our clients.
My business has taken advantage of CBILS. Can I still claim R&D tax relief?
In short, it depends. Businesses that qualify for the SME R&D tax relief scheme (less than 500 staff and either turnover under €100m or gross assets less than €86m) and partly fund R&D projects with CBILS funding will render that project ineligible for the entirety of its term, not just for that tax year. This is because the SME R&D tax relief scheme itself and CBILS are both classed as notifiable state aid and EU and UK tax rules permit the use of one source for any given financial period.
Thankfully, those businesses that qualify for the R&D Expenditure Credit (RDEC) scheme (500+ staff and €100m+ revenue) can claim for any project partly or fully funded from CBILS alongside traditional sources of funding.
Are bounce back loans classed as notifiable state aid?
Yes. Funds received as part of the Bounce Back Loan Scheme (BBLS) are classed as notifiable state aid under the European Commission’s temporary framework for Covid-19. Therefore, any R&D project that is even partly funded by BBLS or CBILS will be ineligible for the SME R&D tax relief scheme but remain eligible for the less generous RDEC scheme.
The Government’s job retention scheme for furloughed staff will not have any impact of R&D tax relief eligibility.
Now is the ideal time to improve your cash flow with R&D tax relief
Regardless of the impact the pandemic has had on individual businesses, most would benefit from a reduction in their corporation tax liability during one of the UK’s largest economic contractions. Recovered funds from R&D tax relief can be used to reinvest in business, people, and processes, as well as to finance future R&D projects and improve squeezed cash flows.
HMRC has pledged to a 28 day turnaround time on 95% of R&D tax claims so that businesses receive the financial support they need more quickly to remain liquid and maintain viability through the pandemic. If under pressure from the bank, businesses can direct funds through their accountant’s client account and distribute the funds at their discretion.
We recommend that impacted businesses bring forward the completion of their tax returns and submit R&D tax relief claims for the 19/20 tax year as soon as possible to receive fast financial relief. Those businesses that are expected to fail the ‘viable ongoing trade’ requirement later in the year may want to think seriously about bringing forward their tax submission to avoid complications and ineligibility later on.
Example calculation based on £100k of qualifying R&D expenditure
RDEC Scheme – £100,000 x 13% taxable credit = £13,000. Corporation tax @ 19% = £10,530
SME Scheme (profitable businesses) – £100,000 x 130% enhancement = £130,000 @ 19% = £24,700
SME Scheme (loss making businesses) – £100,000 + 130% enhancement = £230,000 x loss surrender rate @ 14.5% = £33,350
Businesses that have no other option but to use CBILS or BBLS to finance R&D projects should ideally avoid spreading the funding across all developments, and instead finance projects from traditional sources where possible. HMRC has communicated that projects will be disqualified for any given tax year if CBILS or BBLS is used to either partly or fully finance them.
Will HMRC accept late claims due to the Covid-19 pandemic?
HMRC will accept late R&D tax credit submissions under extreme circumstances and will be judged on a case by case basis. However, we recommend businesses continue to submit claims within the existing guidelines if possible.
How can Cost Care Tax help?
Our tax experts are on hand to advise you on how accessing CBILS and BBLS schemes and other notifiable state aid will impact your R&D tax relief claim. With over 20 years’ experience in submitting R&D tax relief claims to HMRC for thousands of clients, Cost Care Tax’s effortless claims process will help maximise financial rewards at a time when they are most needed.
Contact us for a no obligation phone call or for more information.
Unfortunately, we cannot provide advice on the Government’s issuance of loans, grants, and aid and recommend you consult your accountant, bank, or financial advisor. A full list of CBILS and BBLS eligibility criteria and FAQs can be found on the British Business Bank website.
There remain outstanding questions as to whether the Government will extend the CBILS and BBLS schemes and how HMRC policy will treat those businesses that fail the ‘viable ongoing trade’ requirement. We will update this web page periodically and contact our clients once we know more about how these policies will affect R&D tax relief submissions.