Businesses have recently been inundated with updates from the Government in respect of several measures that are available to help during the current COVID-19 situation. Some of these new measures include:
- small business grant funding of £10,000 for all businesses in receipt of small business rate relief or rural rate relief;
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000; and
- the Coronavirus Business Interruption Loan Scheme (CBILS) offering loans of up to £5 million for SMEs through the British Business Bank
SMEs need to ensure that careful consideration is given to the financial assistance that is obtained by the Government or any alternative grant provider as this can have a detrimental long-term impact on your business. A grant/loan of £25,000 or even £10,000 may seem extremely helpful in the current climate, however this could have a detrimental impact on the company’s research and development incentives claim, if the company is eligible for relief.
An SME for R&D is a company that (along with its linked and partner entities) has fewer than 500 employees and either an annual turnover not exceeding €100m or balance sheet not exceeding €86m.
Impact On R&D Incentives Claims
If a company is in receipt of a grant/loan which is deemed to be a notifiable State aid, which contributes towards an R&D project, it cannot claim any other State aids.
The SME regime for R&D provides a net benefit between 25% to 33% for qualifying spend on R&D projects. Where it is so generous, it is a notified State aid. Therefore, if one notified State aid (grant/loan) has already been claimed towards a project, then the SME R&D tax relief cannot also be claimed in respect of that same project.
The company would, instead, have to claim under the large company scheme (the Research and Development Expenditure Credit (‘RDEC’)) for the project, which provides a less attractive benefit of approximately 10% on qualifying R&D spend.
Care needed, seek specialist help
Once a grant, or other form of support which is notified State aid, is received towards a project, it cannot subsequently repay this support in order to claim R&D relief under the SME regime. Therefore, it is extremely important to review the impact of any grant/loan prior to the funding being applied for/accepted, as the decision cannot be reversed.
It is possible to obtain financial support for your business without this impacting your R&D claims and it is therefore important that you seek advice from a specialist prior to applying for, or accepting, any grant/loan funding. If you would like to find out more, please feel free to contact Chris Knott.