The government’s Coronavirus Job Retention Scheme (CJRS) was launched on 20th March 2020. From then until 14th June 2021 (the most recently available statistics), 11.6 million jobs have been supported by this measure.
So it’s likely that you’ve made a Coronavirus Job Retention Scheme claim for the wages of your furloughed staff.
As we’re slowly getting back on our feet, businesses are starting to forward plan, with postponed R&D projects taking priority for many. At this stage its important to consider the impact of using the CJRS financial support on your R&D tax relief claims.
Can I claim R&D tax relief for furloughed employees?
No, the staffing costs of furloughed employees cannot be included in your R&D tax relief claim. Even if you topped up their salary yourself by the extra 20%.
As you know, once on official furlough, employees must not do any work at all for your business. The qualifying criteria for an R&D tax relief claim clearly states that staff must be working on a legitimate R&D project. As they weren’t working at all, this cannot be met.
This includes the other costs of employment: pension contributions, employees NICs and gross salary.
The only exception to this is sick pay and holiday pay. These are classed as part of employees’ working time by HMRC and so can be allocated to R&D activity. In other words, if employees take sick leave or annual holiday during a furlough period, you can include the cost of that pay in your R&D tax relief claim.
What about flexible furlough periods?
From July 2020, HMRC introduced a flexible furlough option for employers. This meant that employees can be brought back to work part time and are furloughed for the rest of their working hours. If they are working on R&D projects during their hours at work, this can be included in your R&D Tax Credits or Research and Development Expenditure Credit (RDEC) claim.
This is because the CJRS is not considered to be Notified State Aid, so they can be claimed at the same time.
Does my Coronavirus Business Interruption Loan affect my R&D tax relief claim?
The Coronavirus Business Interruption Loan (CBIL) is classified as Notified State Aid. The SME R&D Tax Credits Scheme is also Notified State Aid. You can only receive one source of Notified State Aid at a time.
This means that if you part, or fully, funded an R&D project using a CBIL, you can’t claim tax relief through the R&D Tax Credit Scheme. But you can use the RDEC scheme.
Does using the Coronavirus Statutory Sick Pay Rebate Scheme (CSSP) impact on my R&D tax relief claim?
The Coronavirus Statutory Sick Pay Rebate Scheme enabled employers to claim back the sick pay for employees with Coronavirus related absences. The CSSP Rebate Scheme is considered Notified State Aid. If you’ve used it to cover the sick leave of employees working on an R&D project, then that project is already funded by another source of Notified State Aid.
This means that you won’t be able to use the SME R&D Tax Credits Scheme. But you can still apply to the RDEC tax relief scheme if you meet the eligibility criteria.
Does other COVID-19 financial support affect my R&D tax relief claim?
None of the government’s financial support packages to help businesses survive the pandemic are specifically designed for R&D projects. Generally speaking, they’re for everyday business running costs – keeping the doors open.
But if you’ve used any of the assorted COVID grants to fund an R&D project it may exclude you from using the R&D Tax Credits scheme because they are both Notified State Aid. But this doesn’t mean that you can’t make a claim through the RDEC scheme instead.
The two main things you need to do are:
- Keep accurate records of your R&D project’s spend
- Get professional support before you make a claim, to make sure its accurate. With the nuances of the different schemes and the impact of specific timings, it’s really easy to mis-step.
As always, we’re here to help – just give us a call on 0330 0539 112.