How the CBILS loans can affect your R&D claim
The Coronavirus Business Interruption Loan Scheme (CBILS) has given significant financial support to SME’s in the UK, that have been affected by COVID-19. The introduction of these loans has helped many businesses with cash flow problems during the pandemic. It is worth understanding, however, that taking advantage of the CBILS Loan scheme could affect your qualification for an R&D Tax Credit Claim.
The CBILS loans are a form of notified state aid, it is made clear in the terms and conditions of the R&D tax relief scheme that as little as £1 of notified state aid, for an R&D project, results in the whole R&D project being disqualified for R&D tax purposes. It is specified as such, as receiving both certified state aid, and tax relief, would in effect be partially double funding a project, as tax relief would be claimed on monies received through funding.
For example, Company A spent £100,000 developing an innovative new product, during this period they took a £15,000 CBILS loan to help them cash flow due to the disruption to their core business. This loan was stated to be used for this innovative new project. It subsequently transpires that this project would have been eligible for the SME R&D scheme and the company could have claimed up to £33,350 back in tax relief. Due to this loan, however, they are unable to legally claim this under the scheme.
What you should do
Taking one of the CIBLS Loans doesn’t have to affect your R&D claim. If for instance a loan were taken, but it was not intended to directly fund an R&D project, then the status of the R&D project and its qualification for R&D tax relief would remain unchanged. Use of these loans must however be carefully recorded and a clear audit trail presented to ensure that they are compliant. Inovasi can advise on the specific requirements of this including, record keeping, ringfencing of funds and correct application procedure.
May 28th 2020 HMRC published guidance clarifying the state aid rules which affects the CBILS loans:
“[CBILS] is notified State aid, meaning that s1138(1)(a) CTA 2009 could potentially prevent a claim for SME relief. We 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.”
If you do propose to utilise a CBILS loan on R&D projects then you can still apply for R&D tax relief on that expenditure but through the RDEC scheme. An RDEC claim is less generous than an SME claim, returning 11-13% of the R&D expenditure versus the potential 33% that the SME scheme can deliver. We are on hand to discuss the options should it be crucial to the continuation and support of your companies R&D activity.
Other Support Schemes
Other Coronavirus related schemes including Bounce Back Loan Scheme (BBLS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) have also been identified as following the same R&D Tax claim protocol. As such they are restricted under the same Notified State Aid classification. The same considerations, therefore, apply to these schemes, as to the (CBILS).
The future fund, launched in May 2020 is not under the same state aid restriction and therefore does not jeopardise qualification for R&D tax relief.
“[Future Fund loans] are not State aid, they are not caught by s1138 CTA 2009 and they need not be considered when looking at the State aid cumulation rules.”
What we do
Inovasi can advise on how a CBILS and other support claims may affect your R&D tax qualification. We can propose ways to ensure that loan funds are not utilised within R&D in your business, for example for payment of wages related to R&D. Please get in touch where a dedicated specialist can assist in you R&D tax relief application.