CBILS and SME R&D tax credits
If the funds you receive from your Coronavirus Business Interruption Loan Scheme or “CBILS” loan are not used for R&D then you can still claim for SME R&D tax credits on your qualifying R&D expenditure. However, you do need to ensure that your CBILS loan is clearly separated from your R&D spend.
You may find different opinions online, but on 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.”
For this reason we’re certain that our position is correct on the matter.
To ensure that there can be no chance of confusion when separating your research and development expenditure from your CBILS loan, we recommend taking the following steps when applying for CBILS:
- Carefully check the terms and conditions of the loan to ensure that it does not require for the funds to be used on anything that might form part of your SME R&D tax credit expenditure (eg paying staff involved in your R&D claim). If you’re unsure about which costs you’ll use in your R&D tax credit claim, read our guide on the subject.
- Where possible, ensure that the intended purpose of the funds (towards ongoing business support and not R&D) is mentioned in your CBILS application.
- Ensure that the same purpose of the loan is also clarified in any other communications eg board minutes.
- Where possible, ring-fence the funds from your CBILS loan from your company’s R&D expenditure in your company accounts.
- Review your record-keeping procedures to ensure that a clear audit trail can be identified for your CBILS funds. This guide from The Balance is a good introduction to effective record-keeping.
CBILS's impact on the RDEC scheme
If you do intend to use your CBILS loan on R&D projects then you can still apply for R&D tax relief on that expenditure, but through the RDEC scheme. A successful 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. However, if it allows you to take out a CBILS and continue your current research and development efforts, then it may be worth pursuing. We recommend getting in touch if you want to understand which path is most suitable for your business.
Other coronavirus schemes’ impact on the SME R&D tax credit
Both the Bounce Back Loan Scheme “BBLS” and the Coronavirus Large Business Interruption Loan Scheme “CLBILS” have been identified as following the same rules on state aid as CBILS. The above considerations should therefore apply when making an application for loans under these schemes. However, the Future Fund is not subject to the same constraints as it does not count as notified State Aid and is instead a commercial loan. From HMRC:
“[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.”
The uncertainty around the impact of these schemes on the R&D tax credit scheme has made it clearer than ever that effective record-keeping and clear accounting practices are vital when managing your firm’s financial position. It’s also reconfirmed the importance of having clear guidance to ensure that your firm is not unduly penalised financially due to misinformation or ignorance.
As always our team of industry-leading R&D credit advisors can help you determine the best course forward. So feel free to get in touch.