UPDATED TO REFLECT HMRC GUIDANCE ON 28 AUGUST 2020
(See bottom of this article for changes on the furlough scheme)
HM Revenue & Customs says it is doing everything it can to process R&D tax credit claims as quickly as possible in the current difficult climate.
In an email sent to the Chartered Institute of Taxation on 2 April 2020, the department has sought to clarify how it is dealing with claims, given the current urgency for companies to have cash whilst the government-imposed lockdown is affecting businesses.
HMRC says its priority is to keep to its published aim of clearing 95% of SME tax credit claims within 28 days, and has brought in extra resource to achieve this.
Time limits for claims are prescribed in legislation, so they should be received by HMRC within 12 months of the statutory filing date of the company’s tax return.
However, where a company is unable to meet this time limit, it should still submit the claim as soon as possible. HMRC says it may be able to accept late claims.
Under Statement of Practice 5/01, HMRC has discretion on accepting late claims.
HMRC was asked whether claims will be paid in full even where a business has other liabilities owing.
In the case of Research and Development Expenditure Credit (RDEC), HMRC has no discretion under the law to do this. But for claims to SME R&D tax credits, HMRC is considering its position.
Update regarding set off of R&D credits against other liabilities (28 May 2020)
HMRC has now provided more detailed guidance on set off.
Under the rules, a claimant company must have been a going concern according to the last published accounts.
In many cases, such accounts will have been prepared before the effects of COVID-19, so that there should not be any issue caused by the going concern requirement.
HMRC says it is monitoring the impact of COVID-19 on the ability of companies to meet this and other requirements, and companies should approach HMRC if it is causing genuine operational difficulty.
Government support schemes introduced in response to the Coronavirus, such as the Coronavirus Business Interruption Loan Scheme (CBILS), potentially compromises a company’s ability to make a claim under the SME R&D tax credits scheme, due to EU state aid rules.
Bishop Fleming has lobbied the Government on this issue and has asked the Treasury to clarify the position.
HMRC says the Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19.
As such, the restriction on receipt of other State aid potentially applies, 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.
This will depend on the facts, but HMRC says it will be monitoring the application of this rule, and welcomes feedback.
Update regarding government support schemes – state aid? (28 May 2020)
HMRC confirms that the:
are all notified State aid, meaning that s1138(1)(a) CTA 2009 (subsidised expenditure) could potentially prevent a claim for R&D SME relief.
The department has also confirmed that it would only expect this to happen where the loan relates specifically to the company’s expenditure incurred on an R&D project, rather than providing general support for the company. This will depend on the facts, and HMRC notes that, for example, a loan used entirely for R&D might lead to s1138(1)(a) applying.
HMRC has also confirmed that the Future Fund, which provides convertible loans that are commercial, are not State aid. Therefore, they are not caught by s1138 CTA 2009 and need not be considered when looking at the State aid cumulation rules.
The department also notes that further loans and grants and other support measures are still under development. These will be State aid, and s1138(1)(a) CTA 2009 will apply to all of those which are provided through the EU Temporary Framework relating to State aid or through the Grant Block Exemption Regulations.
Bishop Fleming has expressed concern that furloughed worker grants under the Coronavirus Job Retention Scheme would compromise R&D Tax Credit claims.
The Incentives and Reliefs team at HMRC has confirmed to us that the grants will not compromise R&D Tax Credit claims, even though the grants are state aid. This is because the grants are for funding the main trade and not an R&D project, and furloughed employees cannot work and therefore cannot be involved in the project.
On 28 August, HMRC made some additional points as regards R&D and the furlough scheme:
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