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Read time: 5 minutes
Last updated: 22 Oct 2021
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Don’t let furlough payments trip up your R&D claim

Many businesses utilised the Coronavirus Job Retention Scheme over the past 18 months and now these same businesses are starting to prepare R&D claims covering the furlough period. We explain the restrictions and potential complications that can arise around furlough payments.
Claims for fully furloughed employees

Claims for fully furloughed employees

One of the key conditions for an employee to be furloughed under the Coronavirus Job Retention Scheme (CJRS) is that they have been instructed by their employer to cease all work in relation to their employment. Consequently it’s not possible for someone on furlough to be actively engaged in qualifying R&D activities, which excludes their furlough time from any R&D claim. This exclusion even applies where the furlough payments were not met by the government.

About the author

Iain Butler

+44 (0)20 7556 1343
butleri@buzzacott.co.uk
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Claims for fully furloughed employees

One of the key conditions for an employee to be furloughed under the Coronavirus Job Retention Scheme (CJRS) is that they have been instructed by their employer to cease all work in relation to their employment. Consequently it’s not possible for someone on furlough to be actively engaged in qualifying R&D activities, which excludes their furlough time from any R&D claim. This exclusion even applies where the furlough payments were not met by the government.

Claims for flexibly furloughed employees

Claims for flexibly furloughed employees

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.

More complexity over time

More complexity over time

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.

Expensive errors being made in R&D claims

Expensive errors being made in R&D claims

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.

How we can help

How we can help

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.

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