Changes to the published guidance on the CJRS and R&D tax relief

H M Revenue and Customs (HMRC) have added further guidance to their Corporate Intangibles Research and Development (CIRD) Manual. 

CIRD83200 gives HMRCs view on how s1123 CTA 2009 should be interpreted for the purpose of R&D tax relief for qualifying staff costs.  It has been updated to reflect how HMRC expects companies making a R&D tax relief claim to correctly attribute the staffing costs of employees engaged in R&D activities prior to being furloughed due to the Coronavirus pandemic or resuming their R&D activities when they return to work under the flexible furlough rules.

The Coronavirus Job Retention Scheme (CJRS) has previously been confirmed as being NOT a notified State aid and so a company in receipt of these payments would not fall foul of the restrictions under s1138(1)(a) CTA 2009. This prevents any SME company in receipt of notified State aid from claiming all their qualifying R&D project costs under the R&D SME scheme rules. However, through the CJRS, the Government is providing a general subsidy towards the staffing costs of a company and as such the costs which have benefited from this general subsidy cannot qualify under the R&D SME scheme rules. 

The difference is subtle but important.  As a notified State aid the whole project costs are prevented from being claimed under the R&D SME scheme rules whereas with a general subsidy only the specifically funded project costs are not able to be claimed under the R&D SME scheme rules. 

This is all a moot point though, as in order to qualify for furloughed payments an employee must have been instructed to cease all work in relation to their employment and as such could not have been directly or actively engaged in R&D qualifying activities whilst on furlough.

To ensure the correct amount of qualifying staffing costs is claimed, periods of furlough should be excluded from the claim, with the qualifying staffing costs apportioned as shown in s1124(3) and (4) CTA 2009 to the period of active engagement in the R&D project. This applies to the CJRS payments together with any top up payments made for the furlough period by the employer and equally for the R&D SME scheme and the Research and Development Expenditure Credit (RDEC) scheme.

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