HMRC update on R&D in light of COVID-19
HMRC is receiving a high volume of questions about the R&D reliefs in the light of the current COVID-19 pandemic. They don’t have all the answers at the moment but will provide further information as soon as possible.
They have circulated the note below which covers some of the most common issues raised. If you have any feedback or questions please mail tax@icas.com or login to the CA Connect forum.
Since this article was first posted in April, HMRC has provided some additional information. This has been added as an update at the end of the article.
R&D Returns & Payments
First, we appreciate there are concerns relating to the processing of R&D claims and in particular claims for payment and whether these can be accelerated.
At a time of pressure on HMRC operational resources, our first priority is to maintain our published aim of clearing 95% of SME tax credit claims within 28 days and we have implemented contingency plans to support this, including applying extra resource to the work. Currently we are meeting this aim. We will give regular updates.
We have received requests for guidance in respect of filing or amendment dates. We appreciate the operational difficulties customers are facing and we will be sympathetic to those facing problems. For example, time limits for claim are set in legislation so that claims for R&D payable tax credit and Research & Development Expenditure Tax Credit should be received by HMRC within 12 months of the statutory filing date of the company’s tax return. If a customer is unable to meet that time limit, they should submit the claim as soon as possible and we may be able to accept a late claim. Statement of Practice 5/01 explains how HMRC will decide whether each claim will be accepted. This can be found here.
We have also been asked whether claims will be paid in full even where the business has other liabilities owing to HMRC. In the case of Research and Development Expenditure Credit [RDEC], HMRC has no discretion, under the current legislation, to do this. For claims to payable SME credit, we are considering the position.
Can the “Going concern” requirement in the SME scheme be set aside?
The going concern condition is a statutory requirement so it is one that HMRC cannot overlook. The condition requires the claimant company to have been a going concern according to the last published accounts. In many cases these will have been prepared before the effects of COVID-19 so that there should not be any issue caused by the going concern requirement. We will be monitoring the impact of COVID-19 on customers’ ability to meet this and other requirements and you should approach us if it is causing genuine operational difficulty.
Are new Government support schemes introduced in response to coronavirus, such as CBILs, State aids or subsidies? Will they affect a company’s ability to make a claim under the SME scheme?
The Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts. We will be monitoring the application of this rule and welcome feedback.
Are new Government support schemes introduced in response to coronavirus, such as CBILs, State aids or subsidies? Will they affect a company’s ability to make a claim under the SME scheme?
The Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts. We will be monitoring the application of this rule and welcome feedback.
Budget 2020 announcements
Following the 2020 Budget earlier this month, the following measures were announced which relate to R&D reliefs.
PAYE Cap
Following consultation last year, the introduction of the PAYE cap on the payable tax credit in the SME R&D schemes will be delayed until 1 April 2021. This allows time for further consultation on the design of the cap. A consultation document has been published and is available here.
The summary of responses to the consultation held last year is available here.
Given the current circumstances, we are considering how to engage with stakeholders during the consultation and will keep you informed. Nonetheless, we welcome written responses by the closing date of 28 May 2020. There are no plans to extend this date at present.
Expanding Scope of Qualifying Costs
The government will also consult on whether expenditure on data and cloud computing should qualify for R&D tax credits. The consultation will be published in due course.
All announcements from Budget 2020, including the above can be found here.
Research and development tax credits supplementary tables
Please see the link below to find further breakdowns of research and development (R&D) tax credit claims by region and sector for Financial Years 2016/17 and 2017/18. These statistics will be released on 16 April 2020 9:30am on the UK Government website.
Off payroll
You may be aware the Government announced on 17th March 2020 that it was delaying the introduction of the off-payroll working reform from April 2020 to April 2021. As a result, the consequential amendments in relation to R&D legislation will not be made until April 2021. More details can be found here.
As we continue to navigate these challenges and unprecedented times, we will endeavour to keep you updated on developments.
We would like to take this opportunity to thank you for your patience and cooperation.
HMRC May update to the original article above:
COVID-19 Support Measures
Bounce Back Loans (BBL). Information here - https://www.gov.uk/government/news/new-bounce-back-loans-to-launch-today
Coronavirus Business Interruption Loan Scheme (CBILS). Information here - https://www.gov.uk/guidance/apply-for-the-coronavirus-business-interruption-loan-scheme
Coronavirus Large Business Interruption Loan Scheme (CLBILS). Information here - https://www.gov.uk/guidance/apply-for-the-coronavirus-large-business-interruption-loan-scheme
The above schemes are all 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. The effect will, as ever, depend on the facts. For example, a loan used entirely for R&D might lead to s1138(1)(a) applying. As mentioned in the 2 April RDCC update we will be keeping an eye on what happens in practice.
Future Fund. Information here- https://www.gov.uk/government/news/future-fund-launches-today
These convertible loans are commercial. They 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.
Innovate UK; Continuity Grants and Loans; Fast start grants. Information here- https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/885671/Innovate_UK_coronavirus_business_support_package_details_final.pdf
Loans and Grants
Some of these support measures are still under development, but I can confirm that s1138(1)(a) CTA 2009 will apply to all of those which are provided through the Temporary Framework (rhttps://ec.europa.eu/competition/state_aid/what_is_new/covid_19.html) or through the Grant Block Exemption Regulations (https://www.gov.uk/government/publications/state-aid-general-block-exemption-regulation and in heading 8 of the following RDCC meeting minutes https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/685620/Research_and_Development_Consultativ__Committee_Minutes_8_December_2017.pdf ). Note that other pre Covid-19 Innovate UK loans (for example see the ‘Innovation Loans’ section under the heading 8 ‘Technical Issues‘ in the RDCC minutes for 4 July 2018 which can be found on this page https://webarchive.nationalarchives.gov.uk/20190405005800/https://www.gov.uk/government/groups/research-development-consultative-committee ) and grants which are or were notified State aid have prevented any SME R&D Relief claim for the project which the loan or grant supported.
R&D Payments
We can now expand on the information on R&D payments issue which was mentioned in the 2 April RDCC Update.
Deferred liabilities
Where Ministers have agreed that tax can be deferred for a specific regime to support businesses in the COVID-19 period, i.e. the ITSA payment on account and VAT quarterly payment deferrals, RDEC or payable tax credit will not be set against any of those amounts before the revise due date.
Time to pay arrangement (TTP)s
Where tax has been deferred as part of a Time to Pay (TTP) arrangement, HMRC will follow existing policy and set any R&D tax credit off against any TTP liability, not just the amount owing at the point in time the credit is paid. This would include informal deferrals offered in advance of TTP arrangements being put in place.
TTP is an agreement by HMRC to delay enforcement proceedings for a given debt to a specified future date. It doesn’t alter the fact that the debt is owed to HMRC or change the due date.
When HMRC agrees to set up a TTP we ask the customer their current and future financial position. TTP is a payment plan based on their ability to pay. If they are expecting a credit, then we build it into the TTP. When HMRC set up a TTP arrangement we will explain that the TTP is subject to our customer providing full information to us and letting us know if their financial position changes. It is therefore important that customers are open about any claims they have made when they set up a TTP and notify us if they make a claim after it has been set up. Any credits will normally be taken into account at the time the TTP is agreed or when the taxpayer notifies HMRC of a credit if it wasn’t expected and notified when it was agreed.
Research and Development Expenditure Credit set offs at s104N (2) step 6
It is a legislative requirement that any RDEC remaining at Step 6 (CTA09/S104N(2)) is set-off against any liability owed to the Commissioners for HMRC. HMRC does not have the power to provide for a temporary relaxation of this rule and there are no plans at present to legislate to provide a temporary relaxation of this rule.
Credits under s130 Finance Act 2008
Credits under s130 Finance Act 2008, including credits under the R&D SME scheme, will continue to can be applied on a discretionary basis. HMRC has a duty to protect public revenue and therefore would always look to offset any credit against tax liabilities before paying a credit. See CIRD90600 ( https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird90600)and DMBM700010 (https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm700010). HMRC will consider the particular circumstances of a customer on a case by case basis if they have objections to the credit being set off against other liabilities.
