What the FCA judgement means for Covid-19 claims

The High Court has handed down the much-awaited judgement on a legal case by the Financial Conduct Authority (FCA) against a number of insurers that tests whether they should pay out on claims for Covid- related losses under business interruption cover. Chris Mallett (pictured), associate director at insurance firm Aston Lark’s Derby office, explains what it means for businesses.

The judgement is complex and runs to more than 150 pages. It is clear, however, that the High Court has agreed a number of policies do provide insurance cover for business interruption losses as a result of Covid-19 – bringing welcome news for a number of businesses that have been heavily impacted by the pandemic. It does not provide any sweeping or general conclusions and each page

of the judgement will consequently need to be carefully reviewed to fully consider the coverage position under each of the included wordings. Chamber members should expect their insurance advisers to be undertaking this review on their behalf as a matter of urgency. Pleasingly, the court has ultimately viewed these policies objectively and

applied the correct stance of deciding on whether a policy does or does not cover Covid-19 based on what is written – and what a reasonable person would have understood the parties to have meant by the language used.

WHAT IS THE FCA TEST CASE ON BUSINESS INTERRUPTION INSURANCE ALL ABOUT? The FCA test case – which was heard during an eight-day trial in July – considered 21 sample wordings from eight insurers. These wordings were identified and included in the test case mainly due to the existence of certain non-damage denial of access and public authority clauses, as well as specific infectious disease extensions. While only 21 sample wordings were specifically included, the FCA

estimates there are 700 types of policies across 60 different insurers and 370,000 policyholders that could potentially be affected by the test case. Although the court has ruled that most of the policies respond to Covid-

19, there is the matter of applying the judgement to a number of differing factual circumstances, in terms of how policyholders were impacted by Covid-19. For example, some businesses were ordered to close as a direct order of

the Government and others weren’t. The judgement did not say the eight defendant insurers are liable across all

the 21 different types of policy wording contained in the sample and made it clear that each policy needs to be considered against the detailed judgement for any policyholder to understand if they have an insurable loss. The court provides a different outcome for policyholders based upon these two different scenarios in some instances, depending on the policy wording.

NEXT STEPS FOLLOWING THE FCA JUDGEMENT We anticipate that one or more of the insurers will appeal the judgement, but this does not stop businesses seeking to settle claims with their insurer before the outcome of the appeal. It’s expected any appeal will go directly to the Supreme Court, which

should ensure the pace at which this case has been dealt with to date is maintained. In the interim, we expect the FCA to set guidelines and deadlines for insurers to communicate with affected policyholders following the judgement, although such guidelines may be altered if and when insurers mount an appeal.

Aston Lark is offering to support Chamber members on their business interruption insurance cases for free. To discuss individual claims, email

What retailers need to know about R&D tax relief

While Covid-19 lockdown turned many consumers to e-commerce, there are options for retailers to improve their cashflow – one of which could be taking advantage of the Government’s R&D tax relief schemes. Caroline Hawkins (pictured), senior manager of Shorts Accountants’ Radius team, explains.

Many retailers don’t realise the activities they are carrying out could make them eligible to claim R&D tax relief. There is a general misunderstanding that this area of tax relief is only available for those companies carrying out a trade within industry or manufacturing but this is not the case. R&D tax relief remains widely

underclaimed but can make a significant difference to the tax position of any eligible business.

SO, WHICH BUSINESSES CAN CLAIM R&D TAX RELIEF? The guidance used by HMRC states that R&D relief is available for “companies seeking to achieve an advance in science and technology through the resolution of scientific and technological uncertainties”. R&D tax relief claims can be

66 business network October 2020

made retrospectively for the previous two years, so there are considerable amounts of cash to be unlocked by innovative companies.

RETAILERS OFTEN QUALIFY FOR R&D TAX RELIEF Retailers are often a rich source of qualifying R&D but many do not recognise it. The key point for R&D claims based on software developments is that the software should be modified substantially beyond its existing capabilities – simply configuring existing software to meet your commercial requirements is unlikely to be R&D if the underlying software is not advanced in any way. While e-commerce sites using

well-established technology are unlikely to qualify for R&D relief, there are many areas where retail companies can see qualifying R&D

activities taking place, such as: • Customer recognition and content personalisation

• Augmented reality offering try- before-you-buy capabilities

• Customer authentication, data management and site security

• Website developments, including chatbots and voice search functions

• Integration with stock control systems

• Interaction with third parties in fulfilment

• Real-time stock management across various platforms

• Pricing, promotions and payment technology.

THE SIMPLEST WAY TO CLAIM R&D TAX It is crucial to engage with an R&D specialist who fully understands the legislation and guidelines.

An efficient R&D specialist will:

• Work with you to minimise the amount of time that you need to spend on the claim

• Liaise with the company to obtain the information required for most claims

• Produce a technical report that is submitted to HMRC along with the corporation tax return.

For any retailer who has never previously considered making an R&D claim, or has claimed in the past but may not have maximised it, now is an excellent time to claim.

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