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SME R&D relief - CBILS and impact of state aid

Emma Clewes, Director, Corporate Tax
07/04/2020
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The government has notified the Coronavirus Business Interruption Loan Scheme (CBILS) as a state aid under the European Commission’s new Temporary Framework for COVID-19. SME R&D relief is sufficiently generous that it is also a Notified State Aid.

Restrictions apply to the amount of state aid that can be received by a company in relation to its R&D projects and so these restrictions potentially apply where the CBILS relates specifically to the company’s R&D expenditure rather than being intended more generally to support the company.

CBILS is a part of a wider package of government support for UK businesses and employees. The company must be an SME with business activities based in the UK and must have a turnover of no more than £45 million, amongst other criteria.

For the purposes of SME R&D relief, grants and subsidies restrict the amount of qualifying expenditure and limit the relief. The receipt of a grant or subsidy that is Notified State aid will, however, result in the exclusion of all of the relevant project expenditure from the SME regime. 

Therefore, obtaining support in the form of CBILS in relation to a specific R&D project will impact the company’s ability to claim SME relief on that project, which can translate into a significant reduction in the R&D tax relief received and thus future cashflows.

SME companies with projects in receipt of CBILS may still qualify for the Research and Development Expenditure Credit (RDEC) scheme. However, the benefit under RDEC is significantly less than what they could claim under the more generous SME R&D scheme. The RDEC benefit is currently 10.53% compared to 43.7% for profitable SMEs and 33.35% for loss making SMEs.

Companies should not forget to carefully assess the impact that obtaining loan finance under CBILS has on their ability to claim SME Research and Development Tax credits.

As with all of the government support packages, the interactions and underlying legislation is evolving and we will be closely monitoring the application of the state aid restrictions and the impact of CBILS in respect of SME R&D relief.

If you have any questions or if you are considering CBILS support and currently claim SME R&D relief, please contact Emma Clewes or your usual Crowe contact and we can help you to consider the impact fully.

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