HMRC confirms the State Aid rules for each new Covid-19 loan scheme

Posted on Friday 29 May 2020 by Vanessa Cooper | Group Technical Tax Manager

GovGrant sits on the Research & Development Consultative Committee (RDCC) to represent UK’s business when it comes to the operational delivery of the R&D tax relief schemes. This is an HMRC-sponsored forum, and as members we receive regular updates as HMRC advice evolves and develops. We are currently in an unprecedented period of change, with the introduction of new and vital measures to support business British business.

For us it’s essential to understand the overall impact of each scheme as we work to deliver the best overall results for our clients.

Vanessa Cooper, Group Technical Tax Manager at GovGrant, passes on the RDCC advice.

How State Aid Rules affect SME R&D tax claims

The update from RDCC on 28 May 2020 contained confirmation on which schemes HMRC consider are notified State Aid and which are not. If a scheme is notified as State Aid it means that s1138(1)(a) CTA 2009 could potentially prevent a claim for SME R&D tax relief.

Importantly 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. The effect will, as ever, depend on the facts in each case. For example, a loan used entirely for R&D might lead to s1138(1)(a) applying.

Companies that have taken advantage of the current schemes that are notifiable for State Aid funding, may potentially claim under the RDEC scheme.

What is a Notifiable State Aid Scheme:

  • Coronavirus Business Interruption Loan Scheme (CBILS)
    The scheme helps small and medium-sized businesses to access loans and other kinds of finance up to £5 million. The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months.
  • Coronavirus Large Business Interruption Loan Scheme (CLBILS)
    The scheme helps medium and large sized businesses to access loans and other kinds of finance up to £200 million. The government guarantees 80% of the finance to the lender.
  • Coronavirus Bounce Back Loan
    The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000. The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.
  • Innovate UK; Continuity Grants and Loans; Fast start grants
    These include:
    – Managing cashflow and project slippage funding;
    – Additional funding to ensure existing projects can continue and complete
    Continuity grants up to £250k (under the Temporary Framework for State Aid). Support is available to fund the remaining costs of live projects that are not already covered through an existing Innovate UK award
    Innovation continuity loans up to £1.6m (under the Temporary Framework for State Aid) for viable businesses facing greater funding challenges
    – Funding new projects
    Through ‘fast start’ grants – also accessible to COVID-19 fast start beneficiaries seeking follow on funding

However the Coronavirus Future Fund is not considered to be State Aid as these are in effect convertible loans which are commercial in nature. As they 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.

What is not a Notifiable State Aid Scheme:

    • Coronavirus Future Fund
      The Future Fund provides government loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal match funding from private investors. These convertible loans may be an option for businesses that rely on equity investment and are unable to access other government business support programmes because they are either pre-revenue or pre-profit.

If in doubt ask

Companies that have taken advantage of the current schemes that are notifiable for State Aid funding, need to understand the implications and whether they are able to claim R&D tax relief and if so under which scheme, SME or RDEC.

As always this demonstrates the specialist nature of R&D work – in the methodology of a claim, the compliance to legislation and the technical evidence needed. These new loan schemes represent lifeline for business at this difficult time, but if you are in any doubt about how they will affect your current or future R&D tax claims then please get in touch find out more.

HMRC rules for new Covid 19 loan scheme

About Vanessa Cooper | Group Technical Tax Manager

Vanessa Cooper | Group Technical Tax ManagerVanessa has over twenty years of accounting experience and works closely with our clients to identify R&D, Patent Box and RDA opportunities. She provides technical training to our internal teams and our partner accountants, ensuring that everyone at GovGrant delivers to rigorous accounting standards. View profile