HMRC Consultation Update – Revised PAYE Cap

HMRC’s new anti-abuse PAYE cap

Following the completion of HMRC’s consultation into ‘preventing abuse of the R&D tax relief scheme for SMEs’, the Government has now confirmed the design of a revised anti-abuse PAYE cap that affects loss-making claimants only.

The PAYE cap is designed to minimise the impact on genuine business claims and will be introduced on or after 1st April 2021. The amount of payable R&D tax credit a small or medium sized enterprise (SME) can claim in a period will be limited to £20,000 plus 300% of its total PAYE and National Insurance Contribution (NIC) liability.

Where a company has an accounting period starting before, and ending on or after the introduction date, they will be treated as two separate periods, with the cap applied to the period from 1st April 2021.

The revised PAYE cap contains the following features:

  • Those businesses that make payable credit claims <£20,000 will be unaffected by the cap.
  • Related party PAYE and NIC liabilities attributable to R&D projects will be subject to the 300% multiplier when calculating the cap.
  • A company is exempt from the cap if two tests are met:
  1. Company employees are creating, preparing to create, or actively managing intellectual property (IP).
  2. Company expenditure on work subcontracted to, or carried out by external party workers, is less than 15% of its overall R&D expenditure.

HMRC states that customer experiences could be negatively impacted as the new measures make the R&D tax credit legislation more complicated and requires additional information to be supplied for those affected.

The Cost Care Tax team will guide affected customers through this regulatory amendment and explain how the cap will, or will not, impact the viability of R&D claims submitted before and after 1st April 2021. Contact our tax professionals on 0330 128 0044 or / for more information or to enquire how Cost Care Tax can assist with your R&D tax credit claim.

More information on the revised cap can be found on the Government’s ‘Preventing abuse of the R&D tax relief for SMEs’ consultation document and summary of responses.

UPDATE – Qualifying expenditure for software R&D claims

At the Spring Budget 2020, the Government stated it would re-examine what costs businesses can include in R&D tax credit claims to ensure the scheme reflects modern R&D processes. As part of the latest consultation, R&D specialists expected clarification on whether the costs associated with generating, analysing, and managing datasets and cloud computing should be included in R&D claims.

To date, HMRC has yet to clarify its position on these software-related costs. We will update this page and our customers directly once the Government communicates its decision.

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What our Clients Say...

We have referred tens of clients to Cost Care Tax over the past 7/8 years and all have been impressed with the professionalism and efficiency of their team. The support in relation to R&D tax claims is unrivalled and exceptional and we highly recommend them. Thanks to Wayne, Paul, Tom, Ben and the rest of the team
Even as a small business (10 employees), we spend significant amounts on R&D projects both in time and materials. Cost Care Tax has managed our R&D Tax Credit claims for the past 7 years, and in that time we’ve found their professional approach has made the process rewarding, straightforward, and painless.
Cost Care Tax has always been there to help us understand what is claimable and what isn’t, and provide us with an easy to use document for recording R&D projects. The submission reports they write are very thorough, and once approved by us they deal directly with our accounts in submitting the claim to HMRC.
Cost Care Tax's services were recommended by a larger contractor who had dealt with Cost Care Tax for various accounting and tax purposes. Needless to say we were not disappointed and they lived up to their recommendation with a high level of professionalism and attentiveness.
As a smaller contractor we can rarely afford the time nor the internal personnel to carry out the abundance of R&D paperwork involved in tax credits. Cost Care Tax takes that pressure away and carries the burden both with complete care and within a decent time frame.

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