R&D Tax Credits – HMRC responses to COVID-19

The R&D Tax Credits available from HMRC could prove an invaluable cash boost to those companies that are eligible to claim. TBAT are keen to persuade the companies that are skeptical they can claim, if they’re eligible.

Who is eligible?

In simple terms if you’re designing, developing or improving a product, manufacturing process or service (typically software), and there are technical challenges to overcome then it’s likely you could claim. HMRC’s own view is that 75% of companies that could be claiming don’t!

In this time of uncertainty, the R&D Tax Credits scheme could be an invaluable source of funding, on top of the other COVID-19 specific business support the Government has put in place, which can be found here:

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

How long will it take?

At TBAT, it takes us around 6 weeks to put your claim together, but then it goes into HMRC! The end of March is always a busy time for HMRC, with a large number of R&D Tax claim submissions being made.

However, recent communication from HMRC states they’re aiming to process claims within their 4-week target, with payment out to companies by 6 weeks. HMRC are processing 95% of SME claims within the 28 days.

Have you already made an R&D Tax Claim?

Does your business need cash into the business?  Have you claimed R&D Tax Credits in the two prior years but used the benefit gained to carry losses forward to maximise the benefit in future years?

If this is the case, then to generate cash you’re allowed for any year ending within the last 2 years to change your corporation tax calculation instead of carrying losses forwards to cashing in losses for your existing R&D claim. Depending on your loss this could yield a cash boost anywhere between 18-33% of the existing eligible R&D spend on the SME Scheme.

HMRC Response to COVID-19 FAQ’s

In response to common questions posed to HMRC in the light of COVID-19, the following is a summary of their points – though they recognise this is fast moving and will provide further information as soon as possible.

What if you’re struggling to process your accounts or gather the information due to staff illness, companies working remotely, short term working or furloughed? 

HMRC account filing or amendment dates are set in legislation and if a company is unable to meet that time limit, they should submit the claim as soon as possible and HMRC may be able to accept a late claim. Statement of Practice 5/01 explains how HMRC will decide whether each late claim will be accepted. This can be found here:

https://www.gov.uk/government/publications/statement-of-practice-5-2001/statement-of-practice-5-2001

What if you owe liabilities to HMRC and make a claim for R&D Tax Credits for a refund of Corporation Tax or Cash In Losses?

In the case of the Research and Development Expenditure Credit (RDEC), HMRC has no discretion under the current legislation. The RDEC Scheme can be claimed for Large Companies, SME projects in receipt of grant funding, or SMEs contracted to do R&D by a Large Company.

For claims payable under the SME Scheme the position is being considered, but there is no further explanation to this and no commitment to any changes.

Can the “Going concern” requirement in the SME Scheme be set aside?

A going concern condition is a statutory requirement and HMRC cannot overlook this. The going concern condition is dependent on the last set of published accounts, which in most cases will have been prepared before the current COVID-19 period. HMRC are monitoring this going forward and the impact on businesses. Approach HMRC if it’s causing genuine difficulty.

If a company accesses some of the new COVID-19 support schemes how does this affect an SME R&D claim?

EU law and the Corporation Tax Act (s1138(1)(a) CTA 2009) states that a company cannot have more than one Notified State Aid for the same project. The SME R&D Scheme, the new COVID-19 CBILs support and innovation grants from Innovate UK are all Notified State Aid. If the CBILs support relates directly to a specific R&D project, then this could affect a company’s ability to claim R&D Tax Credits under the SME Scheme for that project. HMRC are again monitoring this.

There’s a great deal of benefit to companies continuing to access the R&D Tax Credit Schemes (SME and RDEC) and some of the new support programmes as a result of the COVID-19 situation, but if they overlap then check out the details of how these could affect each other.

HMRC are doing what they can to support businesses through the claim process for R&D Tax Credits and for SME payment timescales.

If further information becomes available TBAT Innovation will pass this on. Follow us on Twitter and LinkedIn, and sign up to our newsletter at the bottom of this page for the latest R&D Tax Credit and R&D Funding updates.