If My Client Claims CBILS Funding, Can They Still Claim R&D Tax Credits?
As the coronavirus COVID-19 pandemic continues to bite, businesses all over the country are struggling to stay afloat.
Last month the government therefore launched the Coronavirus Business Interruption Loan Scheme (CBILS), designed to administer a financial lifeline to small and medium sized businesses across the country that have seen their cashflow plummet due to COVID-19.
The scheme is a part of a wider package of government support for UK individuals and businesses at this time. You can find out more on the Government’s Business Support website.
R&D tax relief
Although the CBILS scheme is new, there are many other financial supports available to businesses that have existed for a long time. For innovative companies engaging in research and development specifically there’s the R&D Tax Credits scheme for example. Highly valuable and open to all UK-registered companies regardless of size or profit, we’ve seen an uptick in claims as businesses look to claw back money any way they can.
The R&D Tax Credits scheme is incredibly generous, offering companies as much as 33p back for every £1 spent on R&D projects. However, the application process and complex particularly where additional state aid is concerned. We therefore recommend taking a look at our R&D Tax Credits page before reading on, as well as our recent blog: 8 Common Mistakes Companies Make When Claiming R&D Tax Credits useful.
Some confusion around the CBILS and R&D tax relief claims
The uncertainty around so many aspects of coronavirus has meant there is misinformation and rumours floating around the public domain that aren’t correct. This is particularly the case with how the CBILS and SME R&D Tax Credit claims work alongside each other.
An important point to note about SME R&D claims is that any state aid at all - even in ‘normal’ times - means the SME branch of the scheme can’t be used at all. This is due to the fact that the SME branch of the R&D Tax Credits scheme is very generous in itself, therefore additional state aid (CBILS, in this case) will affect an SME claim. Additionally, the point of the CBILS loans are to generally support businesses through coronavirus difficulties; whereas R&D Tax Credits are in respect of a specific R&D project.
But remember - R&D Tax Credits can still be claimed if your client also receives state aid such as CBILS funding. It’s simply that they won’t be able to use the more generous SME scheme and will instead need to use RDEC. At this point you may find our blog useful: R&D Tax Credits: What's The Difference Between The SME Scheme And RDEC?
We also want to highlight here that although the RDEC scheme seems less lucrative, the combination of an RDEC R&D claim and a CBILS claim is likely to be a bigger financial boost than an SME R&D claim on its own. We will be pleased to advise on this.
The HMRC R&D committee appears to support this view on the impact of the CBILS
The CBILS grants are currently classed as a fully notified state aid. This means the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, unless - as mentioned - it’s related to a specific R&D project rather than to boost general cashflow. If or when this changes will be interesting to see.
The British Business Bank (BBB) has a wealth of information about CBILS as well as a large number of other grants and loans available to businesses during the crisis. It’s previously been a concern that brand new start-ups that had no trading activities when the pandemic hit might be impacted by CBILS if they had already engaged in elements of R&D. But in fact, as CBILS is only applicable to businesses that take at least 50% of their profits from trading activities, these very early start-ups would like be exempt from claiming CBILS anyway. Essentially, CBILS money is intended to be used as we’ve described - as business support only. It’s not intended to support specific R&D projects anyway, and it’s these projects that businesses with no trading turnover are unlikely to have undertaken.
De minimis aids
Another area of misunderstanding is around caps on CBILS based on de minimis aids, and whether the CBILS can be applied if a company has receive de minimis aid in the past. The answer to this, quite simply, is yes. CBILS is a state aid and R&D Tax Credits are a tax relief, but neither of them are de minimis. Plus, you only include the company’s de minimis aids, not all the state aid they have received. If more proof should be needed, the CBILS could only offer up to €200,000 and R&D Tax Credits could only be awarded up to this amount too. But that isn’t the case – no €200,000 cap applies because de minimis isn’t an issue here.
Now more than ever it’s important for general business accountancy firms to work with R&D claims specialists
Both R&D Tax Credits and the new CBILS support from the government can be tricky to tackle, even for the most experienced of company accountants. The former, although very long-running, is a highly niche tax area with plenty of pitfalls for unsuspecting clients to avoid. And the latter is so incredibly new that the learning curve is still very steep.
This is why Tax Cloud strongly recommends accountants work with experienced R&D consultants like us. We deal only with R&D tax relief and nothing else, and will provide sound advice that cuts through the myth.
Additionally, we developed our Tax Cloud portal for accountants specifically for helping you put together your client’s claim. It’s a self-service, fully guided and cost effective solution, that takes you through the application process step by step. There’s also a tax relief calculator where you can quickly and easily work out what your client could claim before taking the plunge. And of course, we’re also on hand if you need us.
Why not try the Tax Cloud portal today or call our team on 0207 360 4437. Alternatively, you’re welcome to drop us a message. It’s business as usual for us during the COVID-19 outbreak and we’ll get back to you as soon as possible.