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R&D Tax Credits

R&D Tax Credits

A cap on payable R&D tax credits for small or medium sized enterprises (SMEs) will be introduced on 1st April 2021 which will limit credits to £20,000 plus 300% of a company’s total PAYE and National Insurance Contributions liability for accounting periods commencing on or after 1 April 2021.

What are the new changes?

The amount of payable R&D tax credit that an SME can claim in any one year will be limited to £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NICs) liability for each accounting period commencing on or after 1st April 2021.

Where a company has an accounting period beginning before, and ending on or after 1st April 2021, they will be treated as two separate periods and the cap will apply to the period from 1st April 2021.

Exemptions to the cap on R&D tax reliefs

A company will be exempt from the cap on R&D tax credits, if it meets the following 2 conditions:

  1. That the company’s employees are creating, preparing to create or actively managing intellectual property and
  2. No more than 15% of the company’s total qualifying R&D expenditure is spent on subcontracting R&D to, or the provision of externally provided workers by, connected parties

SMEs with low UK PAYE/NIC liabilities should consider if these new rules restrict the amount of R&D tax credits available under the SME scheme.

Further information can be found on the following links:

https://www.gov.uk/government/publications/preventing-abuse-of-research-and-development-tax-relief-for-small-and-medium-sized-enterprises/preventing-abuse-of-research-and-development-tax-relief-for-small-and-medium-sized-enterprises

https://www.gov.uk/government/consultations/preventing-abuse-of-the-rd-tax-relief-for-smes-second-consultation

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