Coronavirus and the impact on making R&D tax credit claims

Delays in HMRC processing R&D claims

As a result of the recent downturn in the markets and the ongoing coronavirus pandemic, some businesses are already feeling a significant financial impact. For many, their greatest concern is around cash flow management. Making a R&D claim now could help with short-term cash flow potentially benefitting businesses throughout the pandemic.

We are seeing several businesses bring forward their R&D claim submissions. HMRC has said that although they are seeing pressure on their operational resources, their priority is to maintain their aim of clearing 95% of SME tax credit claims within 28 days. They have implemented contingency plans to support this, including applying extra resource and are currently meeting this aim.

The impact of the Coronavirus Business Interruption Loan Scheme (CBILS) on SME R&D claims

The CBILS has been notified as a state aid under the European Commission’s new temporary framework for COVID-19. As this is a notified state aid, companies who would otherwise make SME R&D claims could instead potentially be forced to claim the less generous Research and Development Expenditure Credit (generally used for larger companies).

The critical factor will be whether the CBILS relates specifically to the company’s R&D project or R&D expenditure, or whether it will be intended to be used more generally to support the business. If the latter, we would expect that R&D tax credits should still be available. Outlining the purpose of the loan will be key to maximising the potential relief over the next 18 months. HMRC have said they will be monitoring the application of this rule and welcome feedback.

Liabilities owed to HMRC and R&D claims

For those who make SME R&D claims, HMRC are considering this and the hope is that they will prioritise payment of R&D credits over collection of other liabilities in the current environment. For RDEC claims the offset is required.

Setting aside the ‘going concern’ requirement in the SME scheme

It is a statutory requirement that companies making R&D tax credit claims can certify that their business is a going concern, hence HMRC cannot ignore it. HMRC’s latest update on this indicates that they will look to the last published accounts. In many cases, these will have been prepared before the effects of COVID-19 and there should therefore be no impact on the going concern requirement.

The suggestion here is that such companies would be able to submit claims now even if they would have some doubts about their current going concern status due to any uncertainty surrounding coronavirus.

For companies currently finalising accounts, the position is less clear. HMRC are monitoring the impact of the pandemic on their customers’ ability to meet the going concern requirement and they suggest that if you fall into this category you should approach them if it is causing genuine operational difficulty.

Support during the coronavirus crisis

Please get in touch with Jon Connor at [email protected] for further advice on claiming R&D tax as a way to boost cash flow during the pandemic.

For the latest information and advice on how to access the Government's support schemes available to businesses, please check PM+M's free coronavirus support hub over on the PM+M website, which is updated regularly as new initiatives are announced.