What impact has furlough had on R&D staffing costs?

HMRC has recently provided guidance on how research and development (R&D) relief claimants should treat staff costs for employees who have been furloughed, including those whose salaries have been met by the Government through the Coronavirus Job Retention Scheme (CJRS).

Here, Dominic Aspinall, Tax Manager at Cowgills summarises the key points:

Treatment of furloughed employees where CRJS grant is claimed

Since one of the conditions for claiming a CJRS grant is that all work ceased during a claim period, with the exception of training and study, HMRC naturally considers that those employees can’t be regarded as being directly or actively engaged in relevant R&D during those times. This also applies to any ‘top-up’ from the company itself.

Since 1 July 2020, with the introduction of flexible CJRS arrangements, where employees have undertaken employment activity that is attributable to R&D, a claim for R&D tax relief related to these staff costs can be made in the usual way.

Employees furloughed where no CJRS grant claimed

Where staff have been furloughed, but no CJRS grants have been claimed, then HMRC’s view is that an R&D claim can only be made for actual employment activity attributable to R&D and account must be taken of the appropriate proportion rules.

Holiday pay and sick pay during furlough

HMRC considers that paying holiday pay and sick pay is a necessary cost of the employees undertaking R&D work and is, in effect, part of the cost of their working time. Any annual or sick leave recorded during the furloughed period can be included in the staffing cost calculation when apportioning between qualifying and non-qualifying activities.

The rules for subsidised expenditure will come into play under the SME R&D tax relief scheme whereby staffing costs incurred on leave and sickness during furlough were met in whole or in part by the CJRS. HMRC will accept a fair and reasonable apportionment when calculating the element of subsidised staffing costs in these circumstances.

Other one-off payments to staff

Costs can’t be claimed for payments made during gardening leave or payments in lieu of notice as the employees cannot be considered as being directly or actively engaged in R&D during this time.

Redundancy payments would also typically be excluded from the claim. HMRC’s view is that bonuses can be included only where the payment is attributable to the underlying R&D activity and where the bonus is linked to R&D activities carried out as part of the employment.


It’s essential that R&D claimants carefully consider the implications of furlough on claiming R&D staff expenditure, especially where they have claimed CJRS grants. If you wish to discuss how any of the above might affect your eligibility for R&D tax credit claims, get in touch with our team today by filling out our contact form, phoning us or scheduling a callback.