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Flexible furlough, introduced in July 2020, allowed businesses to bring back employees part-time, but required the employee to do no work in relation to their employment during the time covered by a CJRS claim . Under this scheme furloughed staff were permitted to undertake study and training, but the furloughed individual was still prohibited from working on R&D activities during this time. Again, the salary, national insurance payments and pension payments associated with the furlough days need to be excluded. However, for the working portion of the week you could make a claim if the individual was actively engaged in qualifying R&D activities. Therefore, during this later period of the CJRS scheme we would expect to see partial claims being prepared.
Over time the level of furlough support has been reduced, and companies have been legally required to top-up salaries to 80% of the pre-pandemic pay. This means that companies will have salary, national insurance and pension payments born by the business that cannot attract R&D tax relief. This is complicating the split between qualifying and non-qualifying staff costs for furloughed staff.
We are starting to see mistakes in the R&D claims that businesses are preparing to cover the time where the CJRS scheme was in operation. Many companies have rolled forward their existing claim methodology and this approach has not been updated to take into account staff time on furlough. In relation to the early days of the CJRS scheme, this exclusion is easily applied as staff were either in work or on furlough full time. But when staff are partially furloughed, or businesses are topping up salaries, it can become easy for mistakes to creep in. Not only does the claim need to look at the salary impact of furlough but extreme care is needed when calculating the qualifying pension and national insurance payments. We find that many companies are simply unaware of the restrictions that need to be applied or are using simplified methods that are incorrect.
If your business made use of the CJRS scheme during the pandemic and you are unsure whether the staff cost claim has correctly excluded any furlough payments, please get in touch. Please fill in our form below and our dedicated R&D tax team will call you to review your furlough R&D claim.
R&D tax credits
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Iain Butler
Submitting a R&D tax credits claim
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4 October 2021
What recent R&D tax credits trends mean for businesses
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