The government has announced a cap on the amount of payable tax credit that a company can claim for Research and Development (R&D). The cap will be £20,000 per period plus 300% of the PAYE and NIC payable for the period. This will take effect for periods starting on or after 1 April 2021.
Why is an R&D cap being introduced?
The cap is being introduced to deter abuse of R&D tax relief. The government believes that the tax credit has become a target for fraud and abuse and this measure is a response to that.
Will this change affect my company?
The cap will affect small or medium sized companies (SMEs) that carry out R&D and claim the payable R&D tax credit.
The payable tax credit provides valuable support to loss-making companies engaged in R&D. It allows those companies to claim a tax credit worth up to 14.5% of the R&D element of their surrendered losses.
The smallest claims will not be negatively affected due to the £20,000 minimum element of the cap.
If you are unsure whether you are affected by the cap, please contact one of our R&D tax relief specialists.
Is my company exempt from the R&D cap?
A company is exempt from the cap if its employees are creating, preparing to create, or managing Intellectual Property and the company does not spend more than 15% of its qualifying R&D expenditure with connected persons.
The aim is to exempt companies with low PAYE and NIC, but which are nevertheless engaged in genuine, substantial R&D.
Has there previously been an R&D cap?
Some people may recall that there used to be a cap on the amount of payable R&D credits, linked to the amount of PAYE and NIC payable by a small company. This cap was removed in 2012.
The Chancellor announced in 2018 that a cap would be reintroduced and a period of consultation followed. The cap will be implemented from April 2021.
How we can help?
We have extensive experience of making successful R&D tax relief claims. If you would like to discuss whether your company may be eligible to claim R&D tax relief or how your claim may be affected by the cap, please get in touch with us.
For more information on R&D tax relief, read our guide here.
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