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Updated: 6th November 2020

Research & Development (R&D) Tax Claims Explained

Research and Development (R&D) Tax Relief is designed to help innovative businesses claim corporation tax deductions or a cash refund from HMRC in reward for their R&D project.

This tax incentive is a Government initiative and has been around longer than you might think. It was launched in 2000 to encourage companies to invest in R&D and in the last 12 months alone, UK companies have claimed just short of £3bn in R&D Tax Relief.

Following the COVID-19 coronavirus pandemic which has caused havoc for so many businesses across the UK, HMRC is well aware of the importance of expediting capital to companies at this time and has pledged to process 95% of repayments within 28 days and has brought in additional resources to achieve this. Corporation tax repayments can be processed even more quickly, providing a well-timed boost for embattled businesses.

But there is some conflict between R&D and other government funding – such as Coronavirus Business Interruptions Loans (CBILS) and Bounce Back Loans – that businesses should be aware of. This boils down to the issue of Notifiable State Aid and how it is defined.

Notifiable State Aid – R&D, CBILS and Bounce Back Loans

Specific financial support measures created by the Government to offer incentives and lifelines to UK businesses have been categorised as Notifiable State Aid (NSA).

R&D has already been classed as NSA and now the following support schemes have followed suit under the European Commission’s new Temporary Framework for COVID-19:

  • Coronavirus Business Interruption Loan Scheme (CBILS)
  • Bounce Back Loan Scheme (BBLS)
  • Retail, Hospitality & Leisure Grant Fund (RHLGF)

If a company receives financial support from one of these schemes listed above, the business will not be entitled to claim R&D Tax Relief for that project as you can only claim one type of Notifiable State Aid (NSA) on a specific R&D project.

HMRC has confirmed that CBILS will be classed as ‘fully NSA’. And they have also confirmed that where the CBILS relates specifically to the company’s R&D expenditure on a project (rather than the loan being accepted as general cash flow support for the company’s operations), there’s a risk that the expenditure on the R&D project will therefore become disqualified from future tax credit claims due to effectively doubling up on NSA. This can lead to a sizeable reduction in the R&D tax relief received over the life of a project and, therefore, have a negative impact on future cash flow.

This highlights the importance of seeing advice from a specialist before applying for grant or loan funding if your company is also involved in R&D activities.

Further Information

R&D is a very useful source of funds and R&D claims are currently being processed quickly but it does fall under State Aid rules which means there are some restrictions on claiming both R&D and a  CBILS loan or Bounce Back Loan which could be deemed to be being used for ongoing R&D work – which ultimately means care is needed when making the R&D claim.The guidance is under review and every R&D claim is analysed on a project-by-project basis, with some areas open to interpretation which is why it’s always worth getting an expert opinion on your R&D application.

For free confidential advice on your R&D claim and to answer any queries you may have on your specific circumstances or questions relating to Notifiable State Aid, please contact us today and one of our specialists will be able to provide the advice you need.

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