The Coronavirus Job Retention Scheme (CJRS) was launched in March 2020, and the cornerstone of the Government’s support to businesses during the Covid-19 crisis. This scheme has been well received and widely utilised but here at Blu Sky we’re interested in one thing – how will this affect a claim for R&D tax relief?
Is it state aid?
The good news is that the CJRS is not classified as State Aid, so won’t directly affect the ability of a company to claim SME R&D tax relief. Employees who are furloughed are also not allowed to work, so by definition cannot be doing R&D for the time that a claim is made under the CJRS. However, what the CJRS will do is make it a lot more complicated to calculate staff apportionment for R&D tax relief claims.
The scheme originally enabled employers to furlough employees and claim back 80% of the salary costs of these workers from the Government. Version two of the scheme came into force in July 2020, and allows previously furloughed employees to return to work part-time, with the Government continuing to fund to portion of time these employees are not in work.
How do we calculate?
To illustrate this, we’ll work through the case of Joshua, a software developer. He works in the R&D team at ABC Ltd, and spends 80% of his time on eligible activities. He was furloughed from 1st March 2020 to 30th June 2020, and has now been asked to return to work two days a week from 1st July 2020 to 30th September. From this point he expects to return to full time work.
So, how would we work out Joshua’s overall R&D apportionment for the financial year Jan-Dec 2020? Let’s look at how he spent his time:
- Five months full-time work;
- Four months completely furloughed; and
- Three months working 40% and furloughed 60%.
Overall, Joshua will spend 6.2 months, or 52% of the year at work. Of this time, 80% is eligible R&D, so his overall apportionment would be 42%.
This kind of calculation is going to be needed for thousands of workers across thousands of R&D claims over the next year or so; we’d recommend preparing yourself when determining your employees time apportionment now. It’s also important to anticipate that furloughed R&D staff and reduced spend on R&D as a response to the crisis will see a proportional reduction in the size of R&D tax relief benefit, if this was you anticipate a lower R&D claim.