New R&D Tax Credit Cap – April 2021
R&D Tax Experts for Startups & SMEs in the UK
As part of the forthcoming Finance Bill 2021, HMRC have announced a cap on the amount that a loss-making SME can receive in R&D tax credits to stop abuse of the scheme.
Currently, loss-making companies can reduce the cost of their R&D by up to 33%. However, from 1 April 2021, this amount will be capped at a maximum of £20,000 plus 3 times the total PAYE and NI paid by the company in the year.
HMRC have maintained that the aim of this legislation is to target those who are seeking to abuse the system, rather than genuine claimants. However, SMEs with very few staff, or with directors taking low salaries, may also be affected by this.
If an SME is loss-making, normally claims around £25,000 in R&D credit but whose only employees are directors being paid a non-tax attracting director’s salary will now only be able to claim £20,000, a loss of £5,000 on their previous expectation.
This means that it may become tax-efficient for the company to increase their director’s salary so that it attracts National Insurance so that 3 times that amount can then be reclaimed through R&D. There will be other implications of doing this so it should always be considered in conjunction with these other factors.
HMRC have also included an exemption for any entity who meets the following two tests:
The company’s employees are creating ‘relevant intellectual property’.
Expenditure spent on work subcontracted to a related party makes up under 15% of the total R&D expenditure
R&D Tax Experts
If you think that the exemptions apply to you, or if you would like advice on whether to adjust planned expenditure considering this change, please don’t hesitate to contact us and one of our R&D tax experts would be delighted to assist further.
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