Coronavirus Job Retention Scheme and R&D tax relief

The Coronavirus Job Retention Scheme (CJRS) was launched in March 2020, and the cornerstone of the Government’s support to businesses during the Covid-19 crisis. It originally enabled employers to furlough employees and claim back 80% of the salary costs of these workers from the Government. Version two of the scheme came into force in July 2020, and allows previously furloughed employees to return to work part-time, with the Government continuing to fund to portion of time these employees are not in work.

This scheme has been well received and widely utilised, but, as with all Covid-19 Government support, at WhisperClaims we’re interested in one thing – how will this affect a claim for R&D tax relief?

The good news is that the CJRS is not classified as State Aid, so won’t directly affect the ability of a company to claim SME R&D tax relief. Employees who are furloughed are also not allowed to work, so by definition cannot be doing R&D for the time that a claim is made under the CJRS.

However, what the CJRS will do is make it a lot more complicated to calculate staff apportionments for R&D tax relief claims. To illustrate this, we’ll work through the case of Bob, a laboratory technician. He works in the R&D team at company A, and spends 80% of his time on eligible activities. He was furloughed from 1st March 2020 to 30th June 2020, and has now been asked to return to work two days a week from 1st July 2020 to 30th September. From this point he expects to return to full time work.

So, how would we work out Bob’s overall R&D apportionment for the financial year Jan-Dec 2020? Let’s look at how he will have spent his time:

  • Five months full-time work
  • Four months completely furloughed
  • Three months working 40% and furloughed 60%

Overall, Bob will spend 6.2 months, or 52% of the year at work. Of this time, 80% is eligible R&D, so his overall apportionment would be 42%. Phew!

This kind of calculation is going to be needed for thousands of workers across thousands of R&D claims over the next year or so, so we’d recommend preparing yourself and your clients now! It’s also important to realise that any company that furloughed their R&D staff, or reduced their spend on R&D as a response to the crisis will see a proportional reduction in the size of their R&D tax relief benefit, so expectation management will be key to happy clients and accurate claims.

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