COVID-19 State aid and R&D: What's the catch?

Research and development tax relief is one of the most valuable incentives available to SMEs, and in the current climate it can be a saving grace for business owners, helping to ease their cashflow.

However, with a whole raft of Government support measures now on offer, questions are beginning to rise over where R&D sits in relation to the COVID-19 loans/grants. The main questions being, can you apply for both?

Unfortunately, it’s not as simple as a yes or no answer. The first thing you should do is check whether the government loan/grant you’re applying for is classed as State aid. If so, it could potentially impede R&D claims, given that R&D relief is also classed as State aid.

Below I have summarised some of the key support measures which have been put in place, and where your R&D claim stands in the relation to the schemes.

Coronavirus Business Interruption Loan Scheme

The Coronavirus Business Interruption Loan Scheme (CBILS) offers SMEs a loan of up to £5million and is classed as notified State aid. This means that funds from this schemes, might come into conflict with R&D claims, depending on how you intend to use the funds. If you’re not planning on using the money from the loan scheme for an R&D project, then technically there shouldn’t be any repercussions for your claim. In this case, where the lines are still blurred, your safest bet is to consult an expert on the matter.

Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme (CJRS) enables employers to furlough their staff during these uncertain times. With nearly 25% of Britain’s workforce furloughed within the first two weeks of lockdown, it’s safe to say that the scheme was welcomed with open arms.

Whilst on furlough, employees are unable to take on any work for the business. In terms of R&D, this means that your furloughed staff won’t be able to contribute towards any R&D activities/projects, which could potentially lead to a lower investment in R&D during this period. This is worth keeping in mind, as it might affect your next R&D claim.

Small business grant fund

The Small Business Grant Fund (SBGF) offers those who pay small business rates, a payment of £10,000. SGBF is classed as de minimis aid, allowing applicants to receive up to €200,000 across a three fiscal year period, anything over this threshold would then class as State aid. Given that all de minimis aid is combined, you’ll need to check whether your SGBF payments push you over this threshold - even if you’re only receiving a small amount. If you do exceed this threshold, potential R&D complications may arise.

Retail, Hospitality and Leisure Grant Fund

This support measure sits hand in hand with SBGF, but it does class as State aid. If your business runs in the retail, hospitality or leisure industries and have applied for a grant it’s worth keeping in mind that this could cause conflict, if you’re already claiming R&D tax credits.

Future Fund

The Government’s Future Fund will offer businesses loans to companies who can match funding privately. Whether the fund classifies as a form of State aid is yet to be confirmed, but in all likelihood it probably will. However, all is not lost, as the scheme funds businesses, rather than research and development activities. Therefore, it’s unlikely that funds from the scheme will have any implications

Grants & loans from Innovate UK

Even though the status of the Innovate UK grants and loans haven’t been set in stone as of yet, they are usually classed as State aid too. The Innovate UK grants and loans are specifically designed for R&D ventures, therefore, businesses usually claim under the SME scheme and the RDEC scheme.

How can we help?

The current times are testing, and business owners are under a huge amount of pressure. Our Tax Incentives and Reliefs team are here to support you, whether that’s taking care of your claim, or giving you extra clarification on State aid and R&D. If you need any assistance with R&D, grants or funding, get in touch.