Small and Medium-sized Enterprise (“SME”) Research & Development tax relief and the Research and Development Expenditure Credit (“RDEC”) scheme are available for the costs of staff who are directly and actively involved in a company’s R&D activities. If the employee is not involved in the R&D activity on a full-time basis, the costs must be apportioned.
The Coronavirus Job Retention Scheme (“CJRS”) was introduced by the government earlier this year to provide payments to employers to cover part of employees’ regular wages for any time spent on furlough, up to a monthly cap of £2,500 per employee. The monthly cap is reduced in proportion to hours actually worked.
Under the CJRS, one of the key conditions for an employee to be furloughed is that they have been instructed by their employer to cease all work in relation to their employment. From 1 July 2020, it has been possible to be a “flexibly-furloughed” employee, which allows businesses to bring back employees part-time, but requires the employee to do no work in relation to their employment at the time they are on furlough. Furloughed staff are permitted to undertake study and training. Further details about the CJRS scheme can be found here.
As furloughed employees have ceased all work for their employer during a CJRS claim period, HMRC considers that those employees cannot be regarded as being “directly or actively engaged” in relevant research and development during those times. As such, the guidance states that the staff costs of these employees will not qualify for R&D credits for any furlough period and should be excluded from claims.