We have seen a degree of incorrect or slightly misleading “dramatic” information out in the public domain about the relationship between the CBILS and SME R&D claims.
A key concept to understand about SME R&D claims is that £1 of state aid on an R&D project means that the project cannot be claimed under the SME scheme. This is because an SME R&D claim is in fact itself a generous state aid. It is important to understand that the second state aid in this case CIBLS must be for the named project to impact an SME claim. So, for example a company receiving a CBILS for general business support in these troubled times is not receiving that loan for a named R&D project. It is receiving it for general support for the business. Unless the CBILS specifically names your R&D project it doesn't impact your ability to claim R&D relief. We think it is highly unlikely these loans will be for named R&D projects as opposed to complete support of a business. The point of them is general support for business.
It is also important to understand that state aid on a project does not mean you cannot claim at all. In most circumstances, the rules are different, an SME can claim under RDEC (Large Company R&D Tax Credit Scheme). Although this appears less lucrative, the combination of a grant and RDEC R&D claim is often worth more than an SME R&D claim alone. It is worth getting advice when sizing up these funding options.
The information we have had through the RDCC (HMRC R&D committee) supports this view on the impact of the CBILS.
“The Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts. We will be monitoring the application of this rule and welcome feedback.”
The British Business Bank (BBB) is a great source of information about CIBLS. I was concerned that early stage start-ups with no trading activities, that only do R&D might be impacted by the above state aid. As they do nothing else, it could be argued the aid was for R&D projects. But the truth is early companies with no trading activity cannot claim CBILS loans as a key eligibility criteria is that 50% of turnover must be from trading activities. Horror stories about the interaction of CIBLS & SME R&D claims are totally pointless. The loans are general business support not specific to R&D projects and companies that only do R&D with no trading turnover cannot claim the loans.
I have also read some “information” about caps on CBILS based on de minimis aids. A €200,000 cap in a rolling three-year period. An SME R&D claim is not a de minimis aid, it is an approved State Aid Scheme. BBB says : “I have had de minimis aid in the past. Can I still get a loan?” Yes, because CBILS is not de minimis. The RDCC says CBILS is a state aid. De minimis is therefore not a factor, neither type of funding is de minimis. It is important to understand when looking at the de minimis aid threshold you only add up the de minimis aids to a company, not all the state aid they have received. Further, and a “logical proof” is:
- If CBILS was de minimis they could not lend more than €200,000. They do.
- If SME R&D claims were de minimis companies would never claim over €200,000. They do.
I would strongly recommend anyone dealing with these issues asks advice from a specialist that understands the rules correctly before planning any type of funding. It is the time for sound advice not drama. There are enough real problem around without people creating fear unnecessarily.
We are here to reassure you. CBILS is designed to support the company as a whole during this difficult time. It would only affect R&D tax credits if a CBILS loan relates specifically to R&D projects rather than being intended to support the company. If you are unsure about your position, contact us to discuss your R&D tax credit claim.