The impact of COVID-19 on the R&D tax scheme
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We’ve published a number of blogs on the technical impacts of Covid on the R&D tax scheme during the year. Specific areas include things like the treatment of CBILs and BBLSs (both of which are considered State Aid by the way, so need treating appropriately), and the treatment of costs for furloughed staff.
As well as issuing guidance on those technical impacts on the scheme, throughout this very challenging period HMRC have tried to keep the market updated on impacts on processing times and how companies might deal with, for example, late submissions.
The concern from businesses and from their accountants over potential delays in payments of R&D claims is understandable. Companies who have been negatively impacted by the crisis need access to additional funds more than ever so where an R&D claim is an important part of fulfilling their short-term capital requirements, delayed payments could be disastrous.
HMRC have clearly recognised this and are maintaining their target of processing 95% of R&D claims within 28 days of being filed. In reality though, anecdotal evidence from our users suggests turnaround times of 7 working days in many instances so this has clearly been good news. Also, if businesses are experiencing operational difficulties due to the coronavirus that will prevent them from filling an R&D claim on time, then HMRC have advised they will be sympathetic to this. They will consider giving extensions to claims that are filed late providing they meet certain criteria—if employees who are key to the R&D claim preparation were absent or ill due to the coronavirus in the period leading up to the claim deadline, for example, then HMRC may grant an extension if it’s required.
But what about the R&D tax market? How has that been affected?
The Market for R&D Tax Credits
In many respects it’s too early to say. HMRC publish detailed statistics on the scheme every September, but this only covers data up to the end of the previous tax year and even then that data isn’t particularly useful as, of course, claimants can go back two full years to make a claim – so the most accurate data is always essentially two years out of date. This means that the September 2020 report is little use in helping us figure out what’s happened across the summer.
So let’s reflect instead on our own experience and the observations we’ve been able to make during the pandemic.
First of all, our world has some noise and factors that might affect our view, simply because of our own growth trajectory. Earlier in 2020 we had made the decision to invest in more sophisticated digital marketing, so the growth we’ve experienced ourselves (which includes three fold growth in monthly customer acquisition during the year) potentially completely masks any growth that may have occurred as a result of Covid-19 driven demand.
However, what we have certainly observed is an increasing interest from accountants, our core customer base, on figuring out ways to help inject capital into their client businesses and R&D tax credits seem to figure highly.
Without doubt, our customers have been demonstrating the following behaviours across the year:
- An increased focus on figuring how to inject capital into businesses
- A realisation that, for eligible businesses and projects, R&D tax credits are a great way to bring in this much needed capital
- Finding ways to access the scheme cost effectively and efficiently has become really important
- R&D tax credits are being used to help turn around struggling businesses – a couple of our customers have some really pointed examples of this
- As a direct result of recognising these things, our users have become more adventurous in exploring eligibility across a wider range of sectors
That adventurous approach has driven demand for our course and webinar content, with users hungry to get a deeper understanding of the scheme and particularly the boundaries for eligibility. Demand has been so high that we’ve regularly seen audiences of 100+ on our webinars and we’ve not only been selling out our open courses, but also been approached by firms looking to run in-house tailored programmes to really immerse their staff in the scheme and ensure that the claims they make are fully compliant.
Time will tell but we are confident that when the next set of stats are published next September, they will show a significant step up in the uptake of the scheme amongst SME’s this year, and whilst it won’t be reflected in HMRC’s reporting (they don’t report on the sources of claims), in our view the number of accountants who are actively assisting their clients with R&D tax claims is increasing steadily and we can only see this as a good thing for their firms and for their clients.