Coronavirus funding and R&D tax relief claims

A question we’ve been asked several times recently is, ‘how will taking up any of the current coronavirus business support funding affect a company’s ability to claim for R&D tax relief in future?’.

The short answer is that it depends on the funding. For example, the the ability to defer VAT payments won’t affect R&D claims. However, for the grant-based support schemes and the Coronavirus Business Interruption Loan Scheme it’s a little more complicated.

The long answer starts with a quick round-up of the rules around State Aid. Essentially, under EU rules, which we are bound by until at least the 31^st December 2020, most State Aid is illegal because it distorts competition. However, the European Commission acknowledges that this is not always the case, and ‘good’ aid can be allowed as long as it uses certain mechanisms and is approved by the Commission.

So, it’s likely that most, if not all, of the grant-based support currently offered by the UK government to support businesses through the disruption caused by coronavirus will be classed as State Aid. The big problem is that these schemes have been fast-tracked, and therefore most haven’t been fully assessed or approved by the European commission. We do know that the Coronavirus Business Interruption Loan Scheme will be classed as notified State Aid.

The other factor to consider is the definition of ‘de minimis’ aid. For funding to be classed as ‘de minimis’ it cannot exceed €200,000 over a rolling three-year period. This could mean, for example, that the £10,000 and £25,000 grants to small businesses in receipt of rates relief would be classed as ‘de minimis’, whereas the larger grants, for example the Coronavirus Job Retention Scheme, may be notified State Aid.

So, what does this mean for R&D tax relief?

As you know from our previous blogs (‘Is it better to take a grant or rely on R&D tax relief to help fund research and development‘ and ‘Don’t get bamboozled by grants’), the SME R&D tax relief scheme in the UK is classed as State Aid. Therefore, taking State Aid in the form of grants prevents a company claiming for all of their eligible R&D expenditure under the SME scheme.

How badly a company’s claim for R&D tax relief is affected by the coronavirus grant funding will depend on two things: what type of state aid the funding is deemed to be, and whether the funding is used to pay for R&D. In the current circumstance, the latter point will be difficult to argue, unless the company has suspended its R&D activities for the duration of the crisis.

This means that it’s really important for companies to note which R&D projects were live at the point of receiving any of the government funding. Any projects that are not live during the crisis or start after the funding is received should not be affected.

For the remaining projects, it’ll then come down to whether the funding is ‘de minimis’. If it is, only the amount of the grant will have to be claimed through the RDEC scheme. If it turns out to be notified State Aid, then the full eligible costs of whatever project it is used to support would have to be claimed through RDEC.

Here at WhisperClaims we’re keeping a close eye on the situation. We’ll update our users as and when more information is available, and will make sure that the app is updated to cover whatever funding scenarios result from the current situation.