Outside of the core health priorities, businesses are trying their best to navigate through this national emergency successfully. The government has set up a variety of coping strategies so that as many companies and SMEs survive as possible. As we delve into the application of these schemes, questions have surfaced about how they interact with existing policies – including R&D tax relief.
Here we answer a few of these concerns, based on communication between HMRC and the Chartered Institute of Taxation on 2nd April 2020.
Will my R&D Tax Credit claim be delayed?
Concern: My claim will be delayed because of the additional pressures on HMRC
HMRC response: They have quickly switched to safe working practices, which includes staff working from home. At this time, they are still meeting their previous timeline of processing 95% of SME Tax Credit claims within 28 days of submission. Given the arrangements they have in place, they expect this to continue.
Am I going to lose out because I’ve missed an R&D application deadline?
Concern: I’ve missed the date to file or amend my R&D tax credit application because of emergency business priorities.
HMRC response: “we will be sympathetic to those facing problems.” They have discretionary capabilities written into the regulations as Statement of Practice 5/01. This means that HMRC can choose to accept a late claim submission.
For example, if you’re outside the 12 months form filing date parameter, HMRC say you should get in your claim as soon as possible and they will decide if they can accept it.
Will my R&D claim amount still be offset against my other tax liabilities?
Concern: I could really do with getting my whole R&D tax relief claim amount in full, instead of it being offset against my other tax liabilities.
HMRC response: With claims placed through the RDEC scheme, HMRC have no lee-way at all and so your R&D tax relief amount will continue to be offset against any other tax you owe.
With the SME R&D Tax Credit scheme, there seems to be some wiggle room and HMRC are “considering their position”.
If I take out a Coronavirus Business Interruption Loan Scheme (CBILS), does this disqualify me from applying for R&D tax relief?
Concern: The CBILS is defined as State aid under the European Commission’s COVID-19 Temporary Framework. As you know, if you get one kind of grant this does restrict your access to other types of State aid. So is it better for you to submit an R&D tax relief claim, or get a loan through the CBILS? Do you have to choose?
HMRC response: The (s1138(1)(a) CTA 2009) state aid rule may apply to your R&D tax relief application if your CBILS loan “relates specifically to the company’s R&D expenditure on a project”. If it is “intended more generally to support the company”, then there shouldn’t be any negative impact on your R&D Tax Credit claim. HMRC say that they are looking at how this rule is being applied and “welcome feedback”.
Carefully thought through and worded loan applications seem to be the best way to maximise the available support for your business.
My business is no longer a ‘going concern’ because of the COVID-19 crisis, does that cancel my existing R&D tax relief claim?
Concern: Not being a ‘going concern’ affects my R&D claim for on work done before the crisis started.
HMRC response: Being a ‘going concern’ is one of the statutory eligibility criteria for making an R&D tax relief claim through either the SME R&D Tax Credit scheme or the RDEC. So it cannot simply be set aside, despite the situation.
But the positive aspect is in the detail of this rule. Your company must be a going concern at the time of your last published accounts. For most claims already submitted you will meet this criteria, regardless of the current status of your business.
HMRC are keeping an eye on how COVID-19 continues to affect business owners “ability to meet this and other requirements”.
We hope this has perhaps put a few minds at rest. We are also continuing to work to near full capacity during the lock down and are here to talk through your specific R&D claim issues. As we get further information from HMRC, we will keep you up to date.