HMRC released their policy on how using the Coronavirus Job Retention Scheme (CJRS) impacts on R&D tax relief claims on 10th September 2020.
In normal circumstances, you can include the staffing costs of employees working on R&D projects as ‘allowable expenditure’ in both Research and Development Expenditure Credit (RDEC) and R&D Tax Credit scheme applications. Obviously, you can only include the proportion of employees’ salaries that are actual spent on R&D projects. In other words, if they spend 50% of their time on the R&D project, then only half their salary is allowable. We’re all used to this calculation.
But how does this apply to furloughed staff? The answer is slightly different, depending on your company’s response to the COVID-19 crisis.
Coronavirus Job Retention Scheme used
If your company used the Coronavirus Job Retention Scheme (CJRS), then you were paid 80% of your employees’ salaries (up to £2,500 a month) by the government and they were furloughed at home. By definition, they could not have been ‘directly and actively engaged in relevant R&D work’ because the rules of the CJRS prohibited any furloughed employees from working at all. Therefore you cannot include the 80% government money, or any top-up you paid, in any R&D tax relief claim.
Furloughed staff, but no CJRS grant
If you didn’t use the CJRS to pay your furloughed staff, you can claim their costs once they were back working on qualifying projects. So from 1st July when the furlough situation became more flexible and employees could return to work part time. The usual R&D tax relief rules of proportionality are then applicable.
What about sick pay and holiday pay during furlough?
Under usual circumstances, sick pay and holiday leave are considered part and parcel of employees’ costs, so are included as allowable expenditure for R&D tax relief purposes.
During furlough, there are different rules for the different schemes:
- RDEC: can be included, proportionately to employees’ actual R&D work, for R&D tax relief
- SME R&D Tax Credit scheme: cannot be included because these costs are part of the ‘subsidised expenditure’ of your CJRS support.
Bear in mind that SMEs can use the RDEC scheme, if it’s more beneficial to the company and they meet the eligibility criteria.
Are redundancy payments claimable under R&D tax relief rules?
One off staff payments have separate rules, depending on their purpose. Those that are not included as allowable expenditure for R&D tax relief:
- Redundancy payments
- Payments in lieu of notice
- Gardening leave payments
But bonuses, or other one off payments, can be included if they are directly connected to eligible R&D project work.