During the coronavirus pandemic, you may have placed some of your employees on temporary leave (furlough) and made use of the Coronavirus Job Retention Scheme (CJRS). This can have an impact on your R&D tax credits claim.
In short: you cannot include staffing costs paid while employees were on furlough in your R&D tax credits claim. The expenditure can’t be incorporated because, under CJRS, furloughed staff members cannot do any work for you. HMRC doesn’t consider them as being actively engaged in R&D activities during this time.
“The rule is causing some businesses to unintentionally exchange a potential 24.7% tax relief for an almost immediate cash flow advantage”, explained Easy R&D’s Tax Partner, Yolande Van Niekerk.
“This might’ve been the only option for some businesses with little or no buffer to get through the pandemic, yet those that could pay salaries without claiming CJRS may have lost out”.
“Many would not have been aware of the impact on their R&D tax credits claim. This highlights the importance of having a professional advisor who can advise you on the potential impact of decisions before they take effect”.
The excluded costs will include their gross salary for their furlough period, plus National Insurance Contributions (NIC) and pension contributions — even if they weren’t fully covered by government funding.
From 1 July 2020, it was possible to flexibly-furlough an employee, which allowed businesses to bring back employees part-time. In these cases, employees still couldn’t carry out any work regarding their employment during a CJRS claim period.
The relationship between staffing costs, furlough, and R&D tax credits can be complex — particularly when flexible-furlough, holiday and sick pay come into play.
We’re here to take all the complexities that go into claiming R&D tax credits off you so that you can get maximum return on your tax credits and back to winning business.
For more advice on furlough and your R&D tax credits claim, you can get in touch here.