From 1 April 2021, a new restriction applies to the payable R&D tax credit available to loss making SMEs.
Research and development (R&D) tax relief can effectively reduce the cost of R&D by as much as 24.7 percent for a profit-making small or medium sized enterprise (SME) (by reduction of their corporation tax liabilities) and 33 percent for SMEs that are loss-making (via a payable tax credit). To deter abuse of the generous R&D scheme available to loss making SMEs, HMRC have announced a restriction, from 1 April 2021, to the amount of the R&D tax credit that a company can receive in any one year. This cap is set at £20,000 plus three times the company’s total PAYE and NIC liability for the period (this may include PAYE/NIC related to connected third party expenditure). Following consultation, certain exemptions are available to minimise the impact to genuine claimants.
The cap is likely to impact SME claimants with limited UK staff presence and that subcontract substantial levels of R&D to connected or third parties. It should not impact SME claimants with substantial UK payroll costs.
Following an extended consultation that began in 2018, HMRC have confirmed the following exemptions to minimise the impact of this anti-abuse measure on genuine businesses:
Loss making SME companies that have low UK PAYE/NIC liabilities should consider if these new rules restrict the amount of R&D tax credits available under the SME scheme and consider, if potentially impacted, whether they can qualify for the above mentioned exemptions.
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