New Capped Payments For R&D Cash Credits – How They Affect SME R&D Tax Claims

In April 2021, after considerable consultation, HMRC introduced a cap on the value of R&D cash credit SMEs could claim. The cap has been set at £20,000, plus three times a company’s PAYE liability in the year the claim is being made for.

While we wholeheartedly support HMRC’s efforts to tackle abuse of R&D tax credit scheme, It’s important to know that this new measure is likely to negatively impact on a range of companies, with a legitimate credit claim of more than £20,000, such as:

• Start-ups and early-stage businesses trying to remain agile and flexible by not committing themselves to fixed payroll costs;
• Companies recharging personnel costs between group entities;
• And those subcontracting R&D activity between related companies.

While the cash paid out by HMRC might be capped, any remaining losses can still be carried forward and offset against future profits. But, in the case of start-ups and those investing heavily in technology development, it may be several years before there are sufficient profits to utilise these accrued losses, resulting in immediate and medium-term impact on their company’s cashflow.

There are however two conditions which, if both are met, still allow a company to receive uncapped cash credits:
1. if employees in the claiming company are creating, preparing to create, or actively managing IP and,
2. if the company’s expenditure on sub-contracted R&D is less than 15% of its overall R&D expenditures.

If you have any questions relating to R&D tax relief or wish to discuss the implications of recent changes to the R&D tax relief scheme on your own company’s claim, please contact Sandy Findlay on 07807 739033 or email sandy.findlay@abgi-uk.com

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New Capped Payments For R&D Cash Credits – How They Affect SME R&D Tax Claims

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