Despite the unprecedented situation which the UK continues to find itself in, we are pleased to see that HMRC has issued greater guidance on the R&D tax credit scheme. These clarifications are not only crucial in terms of understanding and defining the scheme but also in encouraging further R&D.
As many companies across the country repurpose their operations and manufacturing lines to support the fight against COVID-19, we hope that the clarity provided by HMRC will encourage more SMEs and companies to repurpose their lines to support the effort, generate greater R&D throughout the UK and apply for the relief which they are already eligible for.
Key clarifications have been issued around:
Although this is a busy time of year in normal circumstances for HMRC, it is under increased pressure to enact the new initiatives announced by the Government to aid employees, companies and individuals in the fight against COVID-19.
Through the clarifications announced, HMRC has said that it is working hard to honour its aim of clearing 95% of SME R&D tax claims within 28 days. So far, it claims to be on track with this but it also has contingency plans in place and has taken on extra resources to ensure it continues to maintain this.
In terms of late filing for claims, HMRC has expressed sympathy with companies that are suffering an impact from the virus and while claim dates are legislative (must be claimed within 12 months from statuary filings of tax return), it has urged companies to submit claims as soon as possible for consideration. Although they have not confirmed that all or any late claims will be accepted, given the exceptional national situation, we would encourage all SMEs to continue to submit their claim.
HMRC has also confirmed that in terms of Research and Development Expenditure Credit [RDEC], where the company has other liabilities owing to HMRC, it cannot, under current legislation, ensure that claims are paid in full.
Eligibility of claims in regard to other scheme applications
Following the outbreak of COVID-19, the Government has implemented several schemes to support businesses such as the Coronavirus Business Interruption Loan Scheme (CBILS), subsidies and state aid. HMRC has tried to clarify whether these can be applied for at the same time or whether a company will only be able to apply for individual schemes depending on the criteria.
HMRC has stated that CBILS has been notified as a state aid under the European Commission’s new Temporary Framework for COVID-19 and therefore restrictions on receipt of other state aid may apply in some cases. For example, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company, it may apply. HMRC has said that it welcomes feedback on this approach and will be monitoring how claims are handled across the board.
Introduction of the R&D SME credit pay cap
A pay cap that was originally set to be introduced on 1 April this year, which would limit the amount of relief that SMEs could claim to three times the company’s total PAYE and NIC liability for the year of the R&D claim, has thankfully been delayed until 1st April 2021.
Leyton was pleased to see this initiative delayed and hopes that it will encourage more SMEs to seek tax relief on their R&D during these uncertain times and where additional cash streams are crucial for survival to many companies.
In the current challenging circumstances, it has been remarkable to see how quickly businesses across the country have adapted to take on the challenge of the coronavirus crisis. Some organisations are taking on significant risks in remodelling their supply chains to produce vital items like ventilators and hand sanitiser. It is crucial that these businesses are made aware of the funding available to them, particularly given the efforts they are making for the greater good.
It is so important for us all to support the UK’s effort right now and Leyton is offering their full suite of free R&D tax advice from identifying eligible activity for relief to producing the claim, for all of the companies that are working to fight COVID-19.