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Client claimed state aid? R&D Tax Credits are still on the cards

6th May 2022
Brought to you by
tax cloud

Tax Cloud is an R&D Tax Credits claim portal.

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Have you found this content useful? Use the button above to save it to your profile.

The R&D Tax Credits scheme is divided into two branches: the SME scheme, and the Research and Development Expenditure Credit (RDEC).

As the name suggests, the SME branch of the scheme lends itself most to small and medium-sized enterprises. Generally speaking, that is companies with no more than 500 employees and either turnover of under €100 million or gross assets of under €86 million. Larger companies - i.e those above these thresholds - should use RDEC.

The main difference is that the SME scheme is more attractive, offering up to 33 pence of relief for every £1 spent on R&D. RDEC is less generous at 9.7 pence per £1 of expenditure, however claims by their nature tend to be larger.

So the natural question is: Are there any reasons why an SME would need to make an R&D Tax Credits claim using RDEC?

Yes - state aid.

What does previous state aid mean for an R&D tax relief claim?

The good news is that simply because a UK company has previously obtained state funding, it doesn’t mean it’s automatically excluded from claiming R&D Tax Credits. However, it will likely have an impact on how much the company can claim in future.

Innovative companies will always be on the hunt for new funding streams, especially in these straightened economic times we live in. Many also took advantage of various government supports during the pandemic (CJRS, CILS etc), and may well not realise their subsequent R&D tax relief claim will be affected.

It’s one of many reasons accountancy firms in the UK tend to use an R&D tax relief claims portal like Tax Cloud. R&D Tax Credits is a niche topic area and detangling each branch of the relief is complex. It also highlights the importance of planning for R&D Tax Credits, rather than the claim turning into something of an afterthought.

What is it about previous aid that affects R&D Tax Credits?

All state aid is divided into two types: Notified state aid and non-notified state aid. European Commission rules regarding state aid (which the UK is still bound by, despite leaving the EU) stipulate that because the SME R&D Tax Credits scheme is such a generous one, it’s defined as a notified state aid.

So that governments cannot be accused of over-subsidising their own companies, the rule is that only one type of notified state aid can be claimed per R&D project. This includes de minimis state aid.

Furthermore, companies are able to claim for notified state aid-funded projects if they are making their claim for R&D Tax Credits via RDEC. SMEs that have undertaken notified state aid-funded R&D projects should typically claim using RDEC, because the RDEC scheme is not notified state aid (whilst the SME scheme is). Note that it’s okay if only part of an R&D project was funded by notified state aid. This is because when a company claims R&D Tax Credits all expenditure is included.

How is non-notified state aid treated?

Non-notified state aid grants divide up a project into SME and RDEC components. For SMEs that have funded a project with non-notified state aid, only the part of it that was subsidised should go through the RDEC scheme. Any outstanding project costs after that can go through the SME scheme.

This really is a difficult area to work in, even for the most experienced of accountants. Again, this is why many chose to work with R&D funding experts who can deal with claims on behalf of your clients. Not only can this expand the range of services your firm is able to offer (without employing any extra members of staff), it boosts your brand and of course benefits your clients too.

Which specific types of support received by my client during the COVID-19 pandemic will impact their R&D tax relief claim?

When the pandemic hit back in 2020, the government hastily revealed several different types of support package to help businesses through the lockdowns.

Two of the most popular schemes were the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). Both are defined as fully notified state aid (the BBLS may however come under the de minimis exemption). In theory, this means that those companies that took up this support are seeing an impact on their R&D tax relief claims. However, the support at that time was designed specially to fund the general ‘staying afloat’ of businesses, helping them meet their immediate costs; it wasn’t designed to be spent on R&D. Therefore R&D claims shouldn’t actually be affected. That said, the variety of COVID-19 support that was on offer both during the lockdowns and since can easily muddy the waters. All the more reason to consider using Tax Cloud - take a look at our two different packages.

This article was written by Tax Cloud

Developed by the R&D funding experts at Myriad Associates, Tax Cloud is straight forward, great value way of following a set of steps to make an R&D tax relief claim.

Depending on the package you choose, either you or your client will build their claim under the guidance of our specialist team. We’ll check and ‘okay’ everything at each stage to make sure every part of the claim is accurately costed and watertight. The next stage won’t unluck until the last one is complete, and of course we’re here to help if you have any questions.

There are of course also some generous referral fees available to practices who decide to use Tax Cloud too - up to 30%.

Average UK R&D Tax Credit claims are currently around £55,000 which is cash your client could be ploughing back into their company. It could even finance their new cutting-edge project.

Why not try our demo or give us a call on 020 7360 4437. You’re also welcome to use our contact page and we’ll ring you back.