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R&D PAYE CAP FOR SME’s

9th September 2019

R&D PAYE CAP FOR SME’s

For accounting periods beginning on or after 1 April 2020, the cash payment (of 33% of R&D spend) will be capped at three times the total of the company’s PAYE and NIC liability for that year.  Losses that are in excess of the cap, and so cannot be surrendered for a payable tax credit, will be carried forward in the usual way.  The cap will apply by reference to the company’s total PAYE & NIC bill, not just that attaching to R&D.  Also, it includes both employee’s and employer’s NIC. 

HOWEVER………HMRC are looking at some changes to ease the effect this restriction:

 

To protect genuine businesses from the cap, the Government is consulting on the following measures:

  • introducing a threshold below which the cap will not apply. HMRC give £10,000 as an example; if the amount of the payable tax credit is £10,000 or less, there is no need to consider the cap. In its response to the consultation document, the CIOT suggest that the threshold should be set at least £20,000, equating to roughly £60,000 of qualifying R&D expenditure. A potential complication is that the threshold amount may have to be shared between companies under common control;
  • allowing the company to bring in PAYE/NICs paid in respect of the R&D activity by a connected company. The CIOT has welcomed this and suggested that it is expanded to apply to all companies, not just to connected companies; and
  • where a loss cannot be surrendered for a cash payment because of the cap, allowing the company to surrender the loss in a later period when it has paid sufficient PAYE and NICs, subject to a two-year time limit. In this way, the cap would potentially defer the surrender, rather than rule it out altogether. Both the CIOT and the ATT have suggested that no time limit should be imposed.

 So watch this space…..

 If you have any questions in respect to this article or R&D tax credits in general, please do not hesitate to contact us.

John Holland

Senior Manager