As part of Budget 2020, the Chancellor confirmed that the R&D cap would be delayed by a year, to 1 April 2021, to allow further consultation on the proposed measures. This consultation took place over the summer and HMRC has since published its response.
The cap is intended to prevent abuse of R&D tax relief but, was initially quite wide reaching and concern was that genuine companies would be precluded from benefiting from the regime. The Government has, therefore, revised its original proposals and has now confirmed the new cap will be:
- £20,000 (such that claims below this amount will not be affected); plus
- 300% of the company’s PAYE and NIC liability for the relevant period. It will now also be possible to include related party PAYE and NIC liabilities attributable to the R&D project when calculating this cap.
This cap will represent the maximum amount of payable R&D tax credit that a company can claim for under the SME (small and medium enterprises) scheme.
Further to the above, however, no cap will apply if the company can also meet the following two tests:
- the company’s employees are creating, preparing to create or actively managing intellectual property; and
- the company’s expenditure on work subcontracted to a related party, or externally provided workers provided by a connected party is less than 15% of the overall R&D expenditure.
If you would like to understand whether your practice may be affected by the new cap or whether you may be eligible for R&D tax relief, please get in touch.