RESEARCH & DEVELOPMENT IMPACT OF COVID-19 WHAT IS RESEARCH AND DEVELOPMENT? Research and Development (“R&D”) tax relief provides innovative businesses with a valuable tax incentive where works have been carried out on a project that seeks to achieve an advancement in the overall knowledge or capability in a field of science or technology. The relief can be for capital or revenue costs but is only available to companies, with the rate of relief being dependent on whether the claim is being made under the small or medium sized company (SME) scheme or the R&D Expenditure Credit (RDEC) large company scheme.
HOW COULD R&D RELIEF HELP DURING AND AFTER COVID-19? With all the uncertainty and financial concerns facing businesses, dealing with R&D claims for earlier years may not necessarily be a top priority. R&D is however a fantastic form of tax relief which can result in cash back for a company, either by producing a refund of tax already paid or through the “selling” of R&D losses to HMRC for a 14.5% cash credit. Where a profitable company has yet to settle its current year corporation tax liability with HMRC, the R&D claim will instead reduce the tax payment to be made to HMRC by the due date. A company only has a two-year window to deal with its R&D claims. For example, a company with a year end of 31 December 2020 will need to submit its claim before the end of December 2022. 010
ENTERPRISE NE WSLE T TER
We recommend you get in touch to ensure any R&D claims are dealt with as soon as possible. HMRC can then begin processing any repayment and/or your business can accurately pay only what is due by the payment deadline.
HOW COULD COVID-19 IMPACT A FUTURE R&D CLAIM? The government implemented a number of measures to help businesses during the pandemic including the Job Retention Scheme (“JRS”) and Flexible Furlough Scheme (“FFS”). The JRS and FFS enabled employers to effectively “lay staff off” (furlough staff) but to keep paying them at least some of their wages whilst not working. The grant claimed by the employer to cover the reduced wages was taxable income of the business, in effect offsetting the allowable business deduction for the staff costs paid. Where R&D staff have therefore been furloughed, their total working time will be lower which will limit the time they were available to spend on R&D activities, likely resulting in a lower staff cost being included in the total claim. It will be important for a business to maintain accurate records of when staff members have been furloughed and when time has been spent working on R&D projects as this will enable the total R&D staff cost to be calculated accurately when quantifying the R&D claim.
