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COVID-19: R&D tax credit updates

Stuart Weekes, Partner, Corporate Tax
31/03/2020
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The government has announced several measures in order to help businesses through the COVID-19 crisis. While the UK government continues to support and encourage innovation, it is important to understand how these new measures impact R&D tax credits. 

We have outlined below the key updates to these valuable tax incentives.

Furloughing

Furloughing is becoming a popular word. The government is keen to support businesses and prevent mass unemployment by allowing employees to be absent from work and for the business to receive some funding from the government, read more on what support is provided for employers during the COVID-19 pandemic.

While on furlough those employees are not permitted to carry out any work for the company. This means that if they are ordinarily involved in carrying out R&D for the company, for the period of time that they are furloughed, any time costs associated with the individual’s employment will not be permitted to be included in an R&D claim made by the company.

Companies carrying out R&D should therefore ensure they maintain accurate contemporaneous records of when their employees who are working on qualifying R&D projects are actively engaged in the business and its R&D projects as well as the salaries that are being paid to those employees. This way they can maximise the benefit of the R&D tax credit claim as well as any cash savings. 

Going Concern

The R&D tax credit is a valuable benefit for companies in the UK. The SME scheme provides a return of 33.35% for companies that make losses and surrender those losses for cash; the equivalent saving for a profit-making company is 43.7%, delivered as a reduction in the corporation tax liability.

The problem is that to benefit from the SME R&D tax credit scheme the claimant company must be a ‘going concern’ based on the latest published statutory accounts. In the current crisis there is a lot of uncertainty and so directors will be considering whether their company is a going concern when preparing the accounts.

Finance directors should speak with a tax adviser to understand the impact on their business and their ability to claim SME R&D tax credits when considering whether their company is a going concern.

For companies not sure if they can benefit from R&D tax benefits, it is important to seek professional advice to see if you are eligible for a claim. Contact Crowe’s Innovation Taxes team for clear pragmatic advice about R&D tax benefits and what impact these could have on your company or visit our dedicated R&D page.

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Stuart Weekes
Stuart Weekes
Partner, Corporate Tax
Thames Valley