The government has published draft legislation covering a change to the Research and Development (R&D) Tax Relief rules for small and medium-sized businesses (SMEs).
In brief, HMRC has introduced a PAYE/NIC cap on the payable tax credit available for R&D claims – a cap to help prevent abuse of the SME scheme has been considered for a number of years, and there’s already a similar cap in place under the RDEC scheme.
The design of the PAYE cap will include the following features to minimise the impact on genuine businesses and authentic claims:
- A company making a small claim for payable credit below £20,000 will not be affected by the cap;
- A company will be able to include related party PAYE and NIC liabilities attributable to the R&D project when calculating the cap, and these will be subject to the 300% multiplier;
- A company’s claim (of any size) will be uncapped, if it meets two tests. These tests require that a company’s employees are creating, preparing to create or actively managing Intellectual Property (IP) and that its expenditure on work subcontracted to, or externally provided workers provided by, a related party is less than 15% of its overall expenditure.
The above changes are due to form part of the Finance Bill 2021, so will take effect for accounting periods beginning on or after 1 April 2021.
Critically, the need for evidence of Intellectual Property will prove crucial to the future value of R&D tax credit claims. TS Partners is here to guide you through the new changes and maximise the potential of your claim.
If you have any questions regarding the changes, we’re here to help. Get in touch with our team today.
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