The Recovery Loan Scheme and R&D tax relief

The government’s latest round of COVID-19 financial support for companies was announced in the March budget. The new Recovery Loan scheme (RLS) replaces the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), both of which closed for new applications on the 31st March 2021.

The big news for our clients and claimants of R&D tax relief is that, unlike CBILS and BBLS, HMRC have announced that loans taken through the RLS scheme will not affect claims for R&D tax relief, even though the scheme has been classified as Notified State Aid.

The notable exception to this is where a company’s R&D activities fall within the Northern Ireland Protocol. In this situation, HMRC have stated that there is a possibility that, if the loan was used to fund the R&D, the R&D expenditure would be considered to have been subsidised, preventing the company claiming SME R&D tax relief.

The Northern Ireland Protocol is complex, so working out if a company’s R&D activities fall under the protocol is not straightforward. If your client does take out an RLS loan and you think that their activities could be affected, we’d recommend seeking clarification from HMRC before submitting a claim for R&D tax relief.

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