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:
- Company employees are creating, preparing to create, or actively managing intellectual property (IP).
- 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 email@example.com / firstname.lastname@example.org for more information or to enquire how Cost Care Tax can assist with your R&D 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.