HM Treasury and HMRC have jointly issued a consultation document on proposals to re-introduce from March 2021 a cap on the amount of R&D tax credit claimable by SMEs by reference to a company’s PAYE and NIC liabilities. This is in response to instances of abusive claims seen by HMRC where companies have claimed the credit despite having no real UK qualifying activity. Placing a cap on the cash claim linked to the level of payroll taxes payable to HMRC might act as comfort as an indicator of genuine R&D work in this country.
Unlike the previous cap, which was abolished in 2012 and limited to the claimant company’s PAYE and NICs payable for the claim period, the new one would be three times that amount, with a £20,000 de minimis threshold. This recognises that R&D projects today often involve a range of technologies so that specialist external involvement is required in specific areas, or that large R&D projects require collaboration to ‘flex’ resources. Additional provisions would enable the liabilities of related companies to count towards the cap in certain situations.
The proposals are likely to have an impact on the ability to claim a cash credit for companies with a small workforce and subcontracting out major elements of their R&D work.
Our response to the consultation can be viewed here. We argue that further concessions could be included in the design of the cap that would benefit genuine claimants yet keep within the overall aim of safeguarding the scheme from abuse.
Please get in touch if you would like to discuss how the proposals might impact your claim.