Financial icebergs

CBILs and the Bounce Back Loan Scheme

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The financial icebergs headed straight towards the UK’s SME R&D tax credits

In direct response to the Coronavirus pandemic, in March 2020 the European Commission adopted a Temporary Framework that defined and standardised the ways in which Member States can use State Aid to keep their economies afloat. It is under this framework (which runs until 31 December 2020) that the Government rushed out the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS).

While these schemes have been enthusiastically welcomed by businesses, both CBILS and the BBLS are Notified State Aid, leading to concerns amongst our customers that this is going to cause some serious headaches for R&D-conducting SMEs in the not-too-distant future.

What’s the problem?

The problem is that R&D tax relief for SMEs is also a Notified State Aid, and State Aid rules prevent you using more than one form of Notified State Aid on the same project, even if they’re used at different times, and even if you pay the money back.  Just think about the consequences of that for a moment.

It means that:

  1. If you’ve been claiming SME R&D tax credits, you won’t be allowed to use CBILS/BBLS finance to support any project that has received SME R&D tax relief.
  2. If you haven’t been claiming for SME R&D tax credits yet, any project that you support using CBILS/BBLS won’t be eligible for SME R&D tax credits, either now or at any point in the future.

How will my clients be affected?

The impact of this is going to vary depending on the size of the SME, the number of R&D projects they have, and their ratio of R&D costs to total costs. To illustrate the likely impacts as clearly as possible, we’ve described a few different scenarios from our perspective:

Scenario 1

An SME with one R&D project. Most of their business expenditure relates to this single project, for which they’ve been claiming SME R&D tax relief. Let’s say that the SME spent £80k in the claim period, and £70k of this was on R&D expenditure for a single project.

CBILS example

Question: If the SME gets £50k from the Bounce Back Loan Scheme, how should it use this money? The answer is that because its single project has already received a Notified State Aid (in the form of SME R&D tax credits), it should only allocate the BBLS money to its non-R&D costs, or to new projects that haven’t received R&D tax relief. This leaves it in a difficult position – it can’t fund its major activity without breaking State Aid rules.

CBILs example 2

Scenario 2

Now let’s consider an SME with multiple R&D projects, none of which have received SME R&D tax credits. How should it best use its £50k of Bounce Back funding?

CBILs example 3

Well, the worst way to do it is to spread the £50k of BBLS money across its three R&D projects, as shown below:

CBILs example 4

Why is this bad? All of the SME’s three R&D projects have now received Notified State Aid, which means that the SME cannot claim R&D tax relief under the SME scheme. While the SME can still claim R&D tax relief on all three State-Aid-funded projects, this must be done through the less-generous R&D Expenditure Credit (RDEC) scheme, which is primarily used by large companies.

Scenario 3

So, what would’ve been a better way to use the £50k Bounce Back loan? Concentrating the £50k in as few projects as possible is the way to go. In the example below, the SME uses the £50k to fund Project 1, leaving Projects 2 and 3 unaffected by State Aid.

CBILs example 5

This means that the SME could claim R&D tax relief under the SME scheme for Projects 2 and 3, and R&D tax relief under the RDEC scheme for Project 1.

Scenario 4

What’s the best possible scenario?  If the SME is sufficiently large to have substantial running costs that have nothing to do with R&D at all, the best thing for it to do is to use its BBLS funding against those. For example, let’s say they have £80k of non-R&D costs and the same three projects as above.

CBILs example 6

This time, the SME uses the full £50k of BBLS against its non-R&D costs; this leaves its three R&D projects unaffected by Notified State Aid, meaning that it can claim through the SME R&D tax credit scheme for all of them.

Important things to remember about Notified State Aid and R&D projects

The key things to remember are:

  • SME R&D tax credits, CBILS and BBLS are all forms of Notified State Aid.
  • You can only use one form of Notified State Aid per project, for the entire lifetime of the project. You can’t pay back one form to get another.
  • The effect of using Notified State Aid on an R&D project is to push the entire project’s expenditure out of the SME scheme and into the RDEC scheme, which gives a return of about 13p per £1 (before tax) rather than the 25-33p per £1 of the SME scheme.
  • When allocating any form of State Aid to R&D projects, the golden rules are:
    1. If you can, first use the funding on non-R&D activities.
    2. Concentrate the remainder of the State Aid on as few R&D projects as possible.


SMEs in the UK are rushing towards CBILS and BBLS as ways to sustain their businesses until some form of economic normalcy returns. The problem is, very few are aware of how these schemes will affect their ability to claim for SME R&D tax relief, and many will inadvertently breach the rules. It’s not clear how HMRC will respond to that, but they may have little choice but to follow the rules as written. As always WhisperClaims will stay on top of this information and will feed back to you when more information is available.

How to write an R&D tax relief technical narrative

With HMRC’s new mandatory requirement for project descriptions on all submissions, we wanted to share our experiences to help others to write their best possible technical narratives.

Available to download here.

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