PAYE cap: changes to the SME R&D tax credit scheme

Nov 13, 2020 | HMRC, R&D Tax Credits

The government has announced changes to the rules for R&D tax credits for SMEs in a bid to target perceived fraudulent claims from businesses. 

For all claims having accounting periods beginning on or after 1st April 2021, there will now be a cap set at 300% of the company’s PAYE/NIC liability applied to their SME scheme payable credit claims.

Background

In Budget 2018 the government announced that the cap would be applied to SME scheme payable credit claims. The government consulted extensively in 2019 and 2020, and have released draft legislation for the upcoming 2021 Finance Bill.

The government is welcoming feedback on the draft legislation by 7 January 2021, ahead of the Finance Bill being finalised and released.

Who could be impacted?

The change will only affect loss-making companies claiming R&D tax credits via the SME scheme and receiving cashback. Profitable companies, and those claiming via the RDEC scheme will be unaffected.

If your company has fewer than 500 staff, and a turnover of under €100m or a balance sheet total under €86m, then you’re likely to be eligible to claim through the SME scheme. Learn more about the SME scheme, and how it differs from the RDEC scheme, in our guide here.

Are there any exemptions?

The cap will include the following features to minimise the impact on genuine businesses:

    1. A company making a small claim for payable credit below £20,000 will not be affected by the cap.
    2. 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 also be exempt from the cap if it meets the following two criteria.

    1. Its employees are creating, preparing to create, or actively managing intellectual property (IP).
    2. Its expenditure on work subcontracted to, or externally provided workers provided by, a related party is less than 15% of its overall R&D expenditure

 

Need some help?

Speak to our team to understand how these new changes may impact your claim, or to learn more about the SME scheme.