Author: Pronovotech

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PAYE cap draft legislation

Recent investigations by HMRC have identified (and prevented) fraudulent attempts to claim the SME scheme payable tax credit totalling over £300 million.

In order to combat ongoing abuse of the SME R&D tax credit scheme, HMRC has therefore formally announced draft legislation with a view to ensuring that the relief is only directed to legitimate claimants.

Currently, the scheme enables companies to claim a tax credit worth up to 33.35% of qualifying R&D expenditure and receive an immediate cash-flow benefit.

From April 2021, however, new measures will cap the amount of annual SME payable R&D tax credit at three times the company’s total PAYE and NICs liability plus £20,000.

Smaller claims of up to £20,000 will be unaffected by the new legislation, as will larger claims meeting two key criteria:

  • that a company’s employees are creating, preparing to create or actively managing intellectual property (IP)
  • that a company’s expenditure on work subcontracted to, or externally provided workers (EPWs) provided by, a related party is lower than 15% of its overall R&D expenditure.

Click here to view Pronovotech’s thoughts on the new measures, which we published back in August 2020 during the second consultation period.

We had argued that further concessions could be included in the design of the cap that would benefit genuine claimants whilst still safeguarding the scheme from abuse.

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