If I have claimed the bounce-back loan, can I still qualify for Research and Development relief?

The short answer to this question is yes. However, the answer is not as simple as you might expect.

In order to understand the effect of the coronavirus support schemes on qualification of companies for tax relief, we first need to understand a couple of terms. There are two different schemes for relief, the first (RDEC scheme) is targeted towards large companies, while the second (SME scheme) is targeted towards small and medium-sized enterprises.

RDEC scheme

The RDEC scheme is a little complex to understand.

The qualifying expenses are determined in the same manner as for SMEs. This includes both those expenses which relate directly to the research and development work, and those which are effectively overhead expenses, of which a proportion relates to R+D work.

The credit is given at 13% of these expenses, and is a deduction from corporation tax. However, the credit itself is also treated as taxable income – which means after deduction of 19% corporation tax, the relief due is 10.53% of qualifying expenses.

This can be offset against current year corporation tax liability, or, subject to a cap based on the company’s NIC/PAYE liability can be paid out in cash.

SME scheme

The SME scheme is more straight-forward.

An additional deduction of 130% of qualifying expenses is included in the corporation tax calculation, and so gains relief at 19%. The relief due is therefore up to 24.7% of qualifying expenses, although this will reduce if the relief is taken as a payable tax credit.

 This relief is therefore more than twice as generous as the RDEC scheme!

Due to the generosity of the SME scheme, it qualifies as “notifiable state aid” under EU legislation.

This means that should any other “notifiable state aid”, regardless of size, be claimed for this project, relief cannot be given under the SME scheme, and relief can only be gained under the RDEC scheme.

Unfortunately, many of the coronavirus support schemes qualify as notifiable state aid, as you will see in this table.

Bounce Back RD Tammy Insight table for website

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