3 State Aid Scenarios For R&D Projects

There has been a lot of state aid made available to businesses during the coronavirus pandemic.

Which means that for SMEs undertaking Research & Development Projects there is a lot of confusion and problems.

We recently wrote this blog, that scratched the surface of the issue.

However, in this blog we want to dig a little bit deeper into some specific scenarios that SMEs undertaking R&D projects might find themselves in.


The Big Problem: State Aid

Support through the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) have been a lifesaver for many businesses across the country.

However, it’s key to remember that CBILS and BBLS are Notified State Aid.

The rules currently prevent SMEs you from using more than one type of Notified State Aid on the same R&D project.

R&D Relief is available, however this is a Notified State Aid. It would be against the rules to use the R&D Relief in conjunction with other Notified State Aid such as the CBILS or the BBLS.

Paying the money back, or getting the aid at different times, doesn’t matter – two forms of state aid cannot be used on the same project.


Two Difficult Positions

If this was your business, this could put you in one of two difficult positions:

1. If you have been using SME R&D tax credits: You won’t be allowed to use any CBILS/BBLS finance to support any project that has already received the previous relief.

2. If you haven’t used SME R&D tax credits: Any project you have supported using CBILS/BBLS will not be eligible for any more relief, now or in the future.

So, what do you do if you’ve already taken out one of these loans?

Let’s take a look at 3 different scenarios you could be in…


3 Solutions For Different Scenarios

 

1. An SME with 1 R&D Project

 

  • They have claimed R&D Relief already.
  • They have taken out a £50k BBL

In this case the SME has only one R&D Project, and it’s likely that pretty much the entire business expenses go out on this single project. 

 

What should they do with their £50k BBL?

The BBL cannot be put toward the R&D project, as the rules don’t permit this.

Instead the BBL must be allocated to non-R&D costs, or to a new project that hasn’t received any R&D relief yet. 

Out of all the scenarios, this is of course the most difficult. It is impossible for a business like this to fund their major project without breaking State Aid Rules with the loan they have received.


2. An SME with 2+ R&D Projects

 

  • None of the projects have received any SME R&D Tax Relief
  • They have taken out a £50k BBL

In this case the SME has their expenses split across multiple R&D projects, and therefore they have some options with how they allocate their loan.

 

What should they do with their £50k BBL?

The worst thing to do would be to split this money across all of their projects. This would mean that none of their projects would be eligible to receive any further relief for the duration of the project.

Instead, the best step is to concentrate their £50k BBL into as few projects as possible. 

This means that they can still apply for the SME R&D relief for their other projects, and apply for the less generous RDEC scheme for whichever project they have put the BBL towards.


3. An SME That Has Running Costs Not Linked With An R&D Project

 

  • The business has expenses that are large, and not linked to their R&D Research Project.
  • They have taken out a £50k BBL

In this case the SME has a large area of expenses that does not fall under an R&D Project at all. This is good news!

 

What should they do with their £50k BBL?

Keeping this loan away from any R&D project, and putting it towards non R&D costs will always be the best option. 

This would mean the SME could continue to claim through the SME R&D tax credit scheme for all of their projects.


A Summary Of The Best Advice

 

1. If you can, first use the funding on non R&D projects.

2. Use the remainder of the State Aid on as few projects as possible.

 

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