HMRC have switched resources so they can make tax repayments quickly to help businesses struggling in the face of the COVID-19 pandemic. One of the biggest sources of tax repayments is claims for R&D tax credits. This applies to all sizes of business, small as well as big – and we find many companies who have previously been advised they are NOT eligible, for whom we then uncover significant claims!
This has been a specialist area of ours for many years now. At the moment we are working on about a dozen claims with an average expected cash claim from HMRC upwards of £100,000. The time taken from submission of the claim to cash going into the clients bank account should be no more than about 6 weeks at the moment. So a properly prepared claim going into HMRC in mid-April should produce cash by the end of May – which could make a real difference to your medium-term cash flow.
To take one example, we have a single claim for around £250,000 of cash for a software-related company employing about 20 staff, many of whom are currently on furlough. This is the fourth successive year this company has received substantial cash payments.
R&D is not just for tech and science-related companies. It includes all sectors. A big sector in Scotland with particular scope is food and drink. Any company that is innovating in products or processes should be looking closely at R&D tax credits. But only companies can claim, not sole traders or partnerships.
You can only maximise your claim if you use an adviser with real skill and experience. It needs really close collaboration with you to understand the nuts and bolts of your business, to be fully aware of all the factors that are needed for a successful claim for your business, and to be able to prove to HMRC that you do qualify. We have a team that has all the skills and experience you need. We often see poor claims that other firms have made and frequently we can reopen the claims and get further cash back for the business.
But what about R&D Tax Claims and other COVID-19 Support?
In recent weeks, it has become clear that we must also consider whether any of the emergency funding measures put in place by the government, as a result of Covid-19, may affect a company’s ability to claim R&D tax credits. These are detailed individually below.
Coronavirus Business Interruption Loan Scheme (CBILS):
It has now been clarified that the Coronavirus Business Interruption Loan Scheme (CBILS) is classed as notified State aid. The background to this is that the scheme issues loans on a commercial basis, however the government guarantee to the lender is a form of state aid to the borrower. There have been recent reports that it is not possible for companies to be in receipt of R&D tax credits while also being in receipt of the Coronavirus Business Interruption Loan. This is incorrect, despite both schemes being notified State aid it is not always the case that one precludes the other.
State aid is financial assistance given by the government to companies that has the potential to distort market competition. In terms of interaction with R&D, SME R&D tax credits are considered a notified State aid and a project cannot be included in an SME R&D tax credit claim if it has received another form of notified State aid.
However, one impedes the other only on a single project basis (not on an entire entity basis). If a project has received one form of notified State aid funding, then it cannot receive another. So a project funded with money from a CBIL cannot then be part of an SME R&D tax credit claim. It can still be included in an RDEC claim (see below). As the rules work on a project-by-project basis, it is therefore possible for business to receive a CBIL and claim SME R&D tax credits.
We believe that if the loan is not for a specific R&D project, then it should not affect the ability to claim R&D tax credits under the SME scheme for qualifying companies. We would recommend that it should be made clear in the loan application that it is for general business operations and perhaps a board minute reinforcing where the loan is to be utilised. If there is evidence that the CBILS loan is for general business purposes and not spent on project costs, we do not consider there to be any issues with claiming SME R&D tax credits for the project.
This is a complicated area, however we are happy to assist with this and will be able to review each claim on a case by case basis. (Contact details can be found at the bottom of this text.)
Bounce Back Loans (BBL):
This scheme is there to help small and medium-sized businesses affected by Covid19 to apply for loans of up to £50,000. The government will guarantee 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. In terms of the interaction with R&D tax credits, we are awaiting confirmation of their status. We think it likely that they will be a notified State aid, and therefore similar guidance applies as for CBILS.
“De minimis” schemes do not affect a company’s ability to claim SME R&D tax credits (only the specific costs which are subsidised are excluded from the claim). With BBL, as the amounts are smaller, they may be classed as “de minimis” State aid (the total de minimis aid that the company receives cannot exceed €200,000 over three years). Clarification is still to be received on this scheme.
Coronavirus Job Retention Scheme:
Broadly, where a company is within this scheme, it should not affect its ability to claim under the SME R&D tax credit scheme. However, it should be noted that, if an employee is furloughed, clearly they cannot be directly and actively engaged in R&D activities. Current claims during this period are unlikely to be affected by this as the R&D being claimed relates to prior accounting periods, but there may be an impact on future R&D claims given the lower R&D investment during this period.
Retail, Hospitality and Leisure Grant Fund (RHLGF):
These grants are also notified State aid, so any companies in this sector should be aware of potential difficulties this may create in the making of R&D tax credit claims. Again this would be reviewed as in the case of CBILs
Under this scheme, the government offer loans which convert to equity, where a company raises matched private funding. The State aid status of this scheme is yet to be confirmed, however we consider it unlikely that this type of financial support for the business could be considered funding a specific project and as such it is unlikely that there will be an impact on an R&D tax credit claim. Again, we would review this on a case by case basis.
Small Business Grants Fund (SBGF):
These grants will generally be considered de minimis aid. If it exceeds the threshold, then it is notified State aid. It should be remembered that de minimis aid is aggregated, therefore even if minimal amounts are received under SBGF, they need to be aggregated with other grants to check the limit is not breached.
Should the receipt of government emergency funding preclude the ability for a specific project to make a claim for SME R&D tax credits, there is an alternative. The expenditure on that project may be eligible for a Research and Development Expenditure Credit (RDEC) claim. The RDEC is not considered to be State aid as it is a taxable credit, although it is a less generous scheme than the SME scheme. SME’s may make a claim under the RDEC for any costs excluded from the SME scheme due to being subsidised. Currently, we are not aware of any interactions between the RDEC and CBIL schemes.
What to do next?
If you want to explore the R&D opportunities further, or have any questions about the above, just get in touch with any of the Corporate Tax team:
Alternative, call and speak to any of the team on 0141 221 2984. We may be working from home, but we’re still fully contactable with access to all our system and processes.
If you’d like more information, you can also download either of the documents below.
For all our tips & guidance around COVID-19 / Coronavirus, see: www.frenchduncan.co.uk/covid-19/.
Corporate Tax Director
0141 221 2984
0141 221 2984
Robert started his career at a top 15 accountancy firm, working in both personal and corporate tax, before qualifying as a chartered accountant in 2008.
Robert believes in proactive client engagement and delivering both commercial and tax efficient planning solutions.
In 2012 Robert joined a top 10 accountancy firm, specialising in the provision of business tax advice to SME’s, owner managed businesses and high net worth individuals.
Robert then joined French Duncan in 2014 and has helped to oversee the growth and development of our corporate tax department.
His current role includes advising on a range of projects including corporate restructuring, capital allowance planning, Research and Development claims, due diligence and international tax issues.
Robert also oversees the corporation tax compliance process for a number of our firms largest and most complex clients.
Corporate Tax Senior Manager
01786 451 745
01786 451 745
Sharon qualified as a Certified Accountant in 1992 whilst training with a small accountancy practice in Glasgow. She started her career in general practice working in all areas including accounts preparation, audit, personal tax, corporate tax and insolvency before specialising in corporate taxation.
Prior to joining French Duncan in 2015, Sharon worked in a top 10 accountancy practice as a senior tax manager specialising in corporate taxation. She has also worked in mid-tier practices and was a corporate tax manager in a Big 4 firm.
She has gained experience in dealing with clients in various industries and of varying sizes of businesses from sole trader to large groups and in her current role oversees the corporate tax compliance for the firm as well as providing business tax advisory services.
As part of her role Sharon oversees the tax compliance and advice for the various clubs, CASCs, mutual societies and charities which the firm represents. This includes working closely with clients and members of the corporate tax team to ensure that the basis on which the work is carried out is in line with current tax guidance, which can be complex at times.
She believes that the advice and work we carry out for clients should be relevant, proactive and delivered in a timely manner and is provided in a format that the client is able to follow which she also instils in her team.
0131 225 6366
0131 225 6366
Stephen began his career working for a short time at HM Revenue & Customs as an Administrative Officer before joining an independent CA practice as a tax assistant dealing with all tax compliance issues and identifying tax planning opportunities. Three years later, he was appointed as tax manager to a mid-tier accountancy practice, where he remained for six years, before joining French Duncan in 2015 in the same role.
Stephen has gained extensive experience of working for both personal and corporate tax clients which helps him give more comprehensive tax advice. Stephen has gained exposure throughout his career to all aspects of Employment taxes and has added to this expertise through completing numerous Employment tax review and due diligence reports. Stephen has also been heavily involved with giving advice, both technical and compliance based, on all aspects of employment related securities which covers both tax advantaged scheme such as EMI, SIP, CSOP and non-tax advantages schemes.
0131 225 6366
0131 225 6366
Throughout his extensive career, Barry has worked for HMRC, Arthur Andersen, Coopers and Lybrand and McCabes. He has been a Tax Partner with French Duncan since its merger with McCabes in 2008.
Barry has a wealth of experience in all aspects of tax matters, from corporate to personal and has a particular specialism in maximising capital allowances for clients. Whilst Barry can advise any business on its tax matters, he has particular expertise in the hospitality and property sectors.
He can also advise on tax incentives for investment.
Barry prides himself on taking the initiative to understand his clients’ needs to deliver results.
He enjoys building strong relationships with his clients and continually seeks opportunities which he believes will be to their benefit.
Partner & Head of Corporate Tax
0141 221 2984
0141 221 2984
Stephen is an experienced tax advisor who has worked in both practice and industry roles during his career. He started his career in London with BDO prior to working with Lloyds Banking Group for three years, where he specialised in providing tax advisory services. Stephen joined French Duncan as a tax director in 2015 from a mid-tier firm in Glasgow and became a Partner in May 2017.
He specialises in advising on a variety of corporation tax matters, including: share reorganisations; group restructuring advice; substantial shareholdings exemption; the taxation of loan relationships and international tax advice. Stephen has gained experience through advising a wide variety of clients, ranging from owner managed businesses to AIM and fully-listed enterprises.
He has developed a reputation for fully understanding the commercial objectives and strategies of businesses prior to providing tax advice, in the process ensuring that the tax outcome is always aligned to the wider business objectives.
0141 221 2984
0141 221 2984
John trained with McLachlan & Brown before joining Price Waterhouse at the start of the 1980s as a tax senior. He moved to Arthur Andersen & Company in the same capacity two years later, before his appointment as a tax manager and, subsequently, tax partner at a constituent firm of Scott Moncrieff, where he remained for some 21 years. John was appointed head of tax in Scotland for BDO in 2006, joining French Duncan as a partner in 2014.
He specialises in advising owner-managed businesses and their owners on a wide range of tax matters, including: acquisitions and sales; reorganisations; share valuations; succession planning; shares schemes; tax efficient investments and inheritance tax planning. John has also advised charitable and not-for-profit organisations and has prepared expert witness reports covering a range of issues.
He has established a reputation amongst his clients as a tax expert who can make often complex matters readily understandable to the benefit of themselves and their businesses.