The treatment for R&D tax purposes of these subsidies and grants etc is now becoming clearer as the UK Government determines which of these should be treated as notifiable state aid, funding and furlough.
This clarity of the treatment of the financial support does however bring its own questions in relation to R&D, for example, if your company claimed furlough for its staff during the first lock down (late March 2020 onwards to late June 2020), any R&D claims which incorporate projects undertaken during this period may be questioned or even rejected on the basis that employees should not have been working (i.e. undertaking R&D activities) if they were receiving furlough payments.
A further example of an occasion when HMRC may question an SME R&D claim relating to projects undertaken during an accounting period ended post 31 March 2020, is when a company has been in receipt of a government grant which has been paid to them to assist with general cash flow. We all understand that subsidies and grants which are made to Companies for specific research and development projects restricts the R&D relief available.
There is an argument that if a Company makes an R&D SME scheme claim for a period in which the only income they were in receipt of arose from government grants, subsidies or governmental financial support, the R&D project undertaken was in fact state or externally funded by proxy and therefore should be limited (partly or completely) to the much less generous RDEC scheme claim and not the more valuable SME claim.
Companies considering R&D claims with Accounting years ended post 31 March 2020 should therefore ensure that they engage an R&D consultant with suitable accounting support and expertise behind them, to ensure any grants, subsidies, financial support and furlough payments received are treated correctly in the Company Accounts and so will not impinge on the value or viability of the R&D claim.
The next step
For further advice on R&D claims and the impact of Covid-19, please get in touch with Lee Pimlett or your usual UHY adviser.
