Coronavirus: R&D and the impact of State Aid

Over the last 2 months we have seen a significant amount of state aid announced by the Government in order to support businesses during these trying times. However, there has been concern over whether receipt of funding through the Coronavirus Business Interruption Loan Scheme (CBILS) could automatically disqualify an SME for all R&D tax relief.  

Unfortunately for SMEs, the R&D tax relief scheme is a form of notifiable EU State Aid, as are the various Covid-19 relief schemes, such CBILS. It may be that the newly announced Bounce Back Loans and Future Funds will also be classified as notifiable EU State Aid in due course. Our understanding is that the Coronavirus Job Retention Scheme (CJRS) payments for furloughed staff will not constitute State Aid.

HMRC guidance

Following this confusion, HMRC has now clarified its policy, which is to disqualify companies using Covid-19 support measures to fund research or development from R&D tax relief under CBILS. 

This might present many SMEs with a dilemma if R&D relief is a vital tool to maintaining adequate cashflow, especially for start-ups. However, if businesses lack sufficient cash reserves to continue they may have to take advantage of CBILS. If this is case then even if CBILS has been claimed only for a portion of the accounting period and it subsidised a cost relating to an R&D project during this time it can make the whole project ineligible for SME R&D tax relief. 

RDEC scheme

It will still be possible for a company using CBILS support to access R&D relief under the R&D Expenditure Credit (RDEC) scheme as this less generous form of relief is not classed as State Aid. 

RDEC provides 10p for every pound of qualifying spend. But compared to the SME tax relief scheme which offers 25p in the pound if the company makes a profit, and 33p if it makes a loss it can have a big impact on the company’s cashflow. 

If you are considering using CBILS for support and are concerned how this might impact your R&D tax relief claim please get in touch with your usual MHA Carpenter Box contact or one of our tax team 01903 234094.