Could government COVID-19 support dampen innovation?

Sussex-based chartered accountants and business advisers, MHA Carpenter Box, say that while the headlines have been about a gradual rolling back of the Coronavirus Job Retention Scheme (CJRS), which closes at the end of June for new applicants, government loan schemes could act as a dampener on future innovation.

“The focus has been on reducing support for CJRS, but HMRC has also confirmed that receiving a Coronavirus Business Interruption Loan Scheme (CBILS) or a Bounce Back Loan could disqualify an SME for all R&D tax relief,” said Andrew Neuman, Client Service Director at MHA Carpenter Box.

“This presents many SMEs with a dilemma if R&D tax relief is a vital tool to maintaining adequate cashflow, especially for start-ups. However, if businesses lack sufficient cash reserves to survive, then CBILS may be the only option and they will need to forego the benefits of the R&D incentive.

“However, not all is entirely lost, because it will still be possible for businesses using CBILS support to access R&D relief under the R&D Expenditure Credit (RDEC) scheme as this is not classed as state aid.”

RDEC provides 10p tax relief for every pound of qualifying spend, although it is significantly less generous than R&D tax relief, which offers 25p in the pound if the company makes a profit, and 33p if it makes a loss.

Neuman continued: “Unfortunately, for many companies it’s a question of taking a loan to stay in business and foregoing the benefit of R&D tax incentives. The concern is that once the pandemic abates and businesses begin to recover, the legacy of today’s vital government support could be to dampen innovation at a time when we most need it as a nation.

“It is, therefore, vital to take appropriate professional advice on this area as the EU state aid rules and restrictions are extremely complicated.”