R&D tax credits are an invaluable relief for growing companies but may be at risk if a business takes advantage of the Coronavirus Business Interruption Loan Scheme (CBILS).
R&D tax credits are a tax incentive available to companies undertaking qualifying R&D activities. There are two regimes under which a company can claim:
- The SME regime for R&D tax credits provides potential corporation tax savings or refunds of between 33% and 43.7% of qualifying expenditure on R&D projects. The Government defined an SME as a company that, along with its linked and partner entities, has fewer than 500 employees and an annual turnover not exceeding €100m or a balance sheet not exceeding €86m.
- Large companies can claim R&D Expenditure Credits. These are less generous but can still create an effective tax credit of up to 10.53% of qualifying R&D expenditure.
Whilst the R&D regime is well understood, what many businesses may not realise is that R&D tax credits are considered Notified State Aid under EU rules. And for businesses that have taken advantage of the Coronavirus Business Interruption Loan Scheme (CBILS), also considered Notified State Aid, that may affect R&D claims planned for this year.
R&D tax credits for SMEs fall into existing state aid rules, with CBILS falling into what is called a ‘temporary framework’ for state aid. Both schemes have limits to the amount of aid a business can receive from government.
Whilst it is possible to receive state aid under both regimes, EU and UK legislation means that an R&D project can only receive one form of state aid. If a business has already made claims for R&D tax credits, the CBILS door may be closed.
Businesses that have not already made an application for CBILS and looking to take advantage of R&D tax credits should first seek advice as to the most appropriate course of action.
One such course may be using the R&D expenditure credits route that whilst aimed at larger companies is open to SMEs unable to use the R&D tax credits route. R&D expenditure credits are not considered state aid and can be claimed alongside CBILS. The scheme is, however, less generous.
Businesses looking to take advantage of R&D tax credits, R&D expenditure credits and CBILS should keep a clear audit trail of expenditure and decision making.
For guidance and advice on CBILS and R&D tax credits please contact one of our friendly experts on firstname.lastname@example.org or 0330 024 3200.