With the onset of COVID-19, the government put up a number of different support packages in the form of grants. Two of the most popular schemes were the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). Understanding how government grant funding impacts your R&D claim will be crucial to maximizing your claim.
Type of R&D Claim
The R&D tax relief is split into two schemes. The R&D relief for SMEs provides 24.7p of relief for every £1 spent on R&D. Larger businesses will be filing for the Research and Development Expenditure Credit (RDEC) which provides 9.7p per £1 spent. However, on occasion, a small business must forgo the funding of the R&D relief and opt for RDEC instead – usually do to other government funding..
Type of Grant
Government grants come in two forms: notified state aid, and non-notified state aid. In an effort to ensure governments do not over-subsidize their own companies, no project is allowed to receive more than one form of notified state aid. If a project received non-notified state aid, the remaining subsidised portion would be claimed through the RDEC scheme. When it comes to the CBILS and BBLS COVID-19 relief schemes, each is considered a fully notified state aid.
R&D and COVID-19 relief funding
The R&D relief for SMEs is so generous that it is considered a notified state aid itself. Which means, if a company opted for either CBILS or BBLS, they are ineligible for the R&D relief for SMEs and would have to opt for RDEC instead.
That being said, it is not as straightforward as you would think. These COVID-19 relief loans are for general business support and may not have directly funded an R&D project. If the notified state aid did not fund an R&D project, then a company may still be eligible to claim for the more generous R&D relief for SMEs. The legislation around tax laws can be tricky and intertwining, so it’s best to look closely at how any grant might impact your company down the line.