Claiming for furloughed workers

Claiming for furloughed workers

As a reminder, the CJRS was launched in March 2020, and forms the cornerstone of the Government’s support to businesses during the Covid-19 crisis. It originally enabled employers to furlough employees and claim back 80% of the salary costs of these workers from the Government. Version two of the scheme came into force in July 2020, and allows previously furloughed employees to return to work part-time, with the Government continuing to fund to portion of time these employees are not in work.

How does the furlough scheme affect a claim for R&D tax relief?

Furlough payments are not classified as State Aid, so don’t directly affect the ability of a company to claim SME R&D tax relief. Employees who are furloughed are also not allowed to work, so by definition cannot be doing R&D for the time that a claim is made under the CJRS.

However, furlough payments must be excluded from R&D tax relief claims. There are two ways to do this - either removing the payments from the staff costs and then apportioning as normal, or leaving the payments in the staff costs but adjusting the apportionments to exclude time spent on furlough.

Let's work through the case of Bob, a laboratory technician. He works in the R&D team at company A, and spends 80% of his time on eligible activities. He was furloughed from 1st March 2020 to 30th June 2020, and has now been asked to return to work two days a week from 1st July 2020 to 30th September. From this point he expects to return to full time work.

Example 1: Excluding furlough payments

Bob's total salary for the year was £50,000, of which £24,000 consisted of furlough payments. Bob's allowable cost for R&D would therefore be:

£26,000 (salary payments) x 80% (time on R&D) = £20,800

Example 2: Adjusting apportionments

During the financial year, Bob spent his time as follows:

  • Five months full-time work

  • Four months completely furloughed

  • Three months working 40% and furloughed 60%

Time spent at work = 5 months (full-time work) + 40% x 3 months (partial furlough) = 6.2 months = 52% of the year

Of this 52%, 80% is eligible R&D, so the overall apportionment is 42%.

This equates to £21,000 of eligible expenditure (42% x £50,000).

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