What impact will furlough have on my claims for R&D tax relief?

Expenditure related to staffing costs during the furlough period cannot be included in your R&D tax relief claim.

The primary reason for excluding this expenditure is that under the Coronavirus Job Retention Scheme (CJRS), furloughed employees were not permitted to carry out any work for their employer during the period in which they were furloughed.

Since R&D tax credit relief is intended to support expenditure incurred on qualifying R&D activities, employees who were furloughed cannot be treated as actively engaged in the company’s research and development projects during that time.

That means, any staff costs which relates to a furlough period must be removed from the claim calculation. This rule applies regardless of whether the employee would ordinarily have been involved in qualifying R&D activities before or after the furlough period. The key consideration is that no qualifying work could be undertaken while the employee was furloughed under the rules of the scheme.

The costs that should be excluded from the claim encompass the gross salary attributable to the furloughed period, employers’ National Insurance Contributions (NIC), and pension contributions. These amounts remain non-qualifying even where the associated costs were not fully reimbursed through government support. When preparing an R&D tax relief claim, businesses should ensure that any expenditure relating to furloughed employees is identified and excluded from the qualifying staff cost calculation.