Coronavirus Response: The benefits of Research and Development (R&D) Tax Relief

Cash has always been king, but in the COVID-19 world we’re living in now this saying has never been more relevant.

As businesses in Greater Manchester and all over the UK address the major impact Coronavirus is having on their sustainability and prospects, and look at opportunities to generate cash from a wide range of sources, one area worth close attention is the R&D tax relief scheme.

For a quick incentive to read on, let me mention one medium-sized SME currently working with the innovation team at the Hub, which made a claim under the scheme last week for more than £20,000; this money should land in the company’s bank account within a couple of months. And it’s worth also noting that this claim related to backdated expenditure covering the last two years.

So what is the R&D tax relief scheme for SMEs?

The scheme is designed to encourage innovation in the UK by allowing businesses to offset research and development investments against corporation tax.

R&D tax relief can be claimed by a wide range of companies that seek to research or develop an advance in their field. This doesn’t just mean people wearing white lab coats; in fact, often SMEs can be carrying out applicable R&D projects without being aware of it.

Eligible innovation projects can include the research or development of a new process, product or service, or improvements to an existing one. The claim can include a proportion of salaries/wages, Class 1 National Insurance contributions and pension fund contributions for staff working directly on the project, as well as subcontractor costs and related software licences.

The relief can even be claimed on unsuccessful projects.

How much are R&D tax credits worth?

For every £1 of identified R&D cost you could save 26p in Corporation Tax, or in some cases – for example, if you’re making a loss, or have already paid your tax bill – receive a cash payment of 33p.

The added benefit for companies new to the process is that claims can be made going back two tax years. If a successful claim can be made this can present a golden opportunity to claim back monies from HMRC.

A word on CBILS

Amongst the new measures the Government has recently introduced to support SMEs affected by the outbreak is the Coronavirus Business Interruption Loan Scheme (CBILS), which is available through more than 40 accredited lenders across the UK.

As this is ‘state aid’, and therefore subject to the relevant European Union rules (which as per the UK Withdrawal Agreement, continue to apply during the EU exit transition period), there is the possibility that CBILS may compromise R&D tax relief. In short, under normal circumstances if a project benefits from notified state aid funding it is not allowed to qualify for R&D. These are clearly anything but normal circumstances, however, and while clarity on this matter is sought, it’s essential for businesses needing cash to seek specialist advice.

What do I do next?

If you answer yes to the checklist questions below, the Hub’s innovation team can help direct you to specialists in the field:

R&D tax relief checklist:

• Are you an SME with less than 500 staff and turnover under £100m?
• Are you a registered UK limited company?
• Do you pay Corporation Tax in the UK?
• Are you spending money in order to make technological or scientific advances?
• Are you trying to overcome uncertainty and are incurring costs in the process?