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The incoming cap on SME R&D tax relief claims. In one sentence: From 1 April 2021, SME’s claiming a tax credit of more than £20,000 will need to check to see if they are affected by the PAYE/NIC cap, of 3 x PAYE/NIC costs + £20,000.
Why is this happening? The government is concerned that some companies might be using loopholes to make R&D claims that they are not entitled to. This change is designed to prevent this, without impacting genuine R&D work. It is possible that the net has been cast too far, however, and legitimate claims could be caught by the rules.
Will I be impacted by this change? If so how? There will be no impact for profit making companies that use an R&D claim to reduce their tax. However, where a company makes a surrender of losses for a tax credit, they will need to make
sure the threshold has not been breached. The cap on any credit received will be £20,000, plus three times the sum of all of the PAYE and NIC liabilities of the company, plus a proportion of the liabilities for any workers from connected companies that are used in R&D. For a company whose R&D costs are primarily staff salaries, it is likely that this cap will not be reached. This is a much more generous cap than the existing RDEC cap, both in terms of the multiplier and definition of relevant PAYE/NIC costs.
What type of legitimate companies might be worst hit? Companies that make very large claims for non-staff costs are most likely to fall foul of the cap, particularly where they have a small number of employees and outsource a significant amount of their R&D work, especially if this work is outsourced overseas, where PAYE/NICs are not a consideration.
