COVID-19 Update – 16 September – R&D Tax Relief and Furloughed Employees

HMRC have confirmed how costs relating to furloughed employees should be treated for the purposes of R&D tax relief schemes.

Furloughed employees where CJRS grant has been claimed

With the conditions of claiming the CJRS grant being no work was to be carried out by furloughed employees during a claim period, these employees cannot be considered as being directly or actively engaged in R&D during that time frame.

Furloughed employees where no CJRS grant has been claimed

Costs can be claimed if qualifying R&D activity has taken place when staff have been furloughed but no grants have been claimed.

Holiday and sick pay during furlough

HMRC considers that paying holiday pay and sick pay is a necessary cost of the employees undertaking R&D work and is, in effect, part of the cost of their working time. Any annual leave or sick leave recorded during the furloughed period can be included in the staffing cost calculation when apportioning between qualifying and non-qualifying activities. However, the rules for subsidised expenditure will come into play under the SME R&D tax relief scheme where staffing costs incurred on leave and sickness during furlough were met in whole or in part by the CJRS.

Other one-off payments

Costs cannot be claimed for payments made during gardening leave or payments in lieu of notice as the employees cannot be considered as being directly or actively engaged in R&D.

HMRC also considers that as redundancy payments are not emoluments, they are not qualifying staffing costs.

However, bonuses and other one-off payments can be included in staffing costs but only to the extent that they meet the attribution rules.

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