Please join us in welcoming Ryan to team Blu Sky!…
CJRS- How will it affect an R&D claim?
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.
It’s time for a little celebration as we welcome a new person to team Blu Sky! Simon has joined us as a Client Payroll Specialist.
As every business owner and most employees, find themselves working from home more than ever before it is important the that the tax implications of this new way of working are understood.