R&D Tax Credit Cap from April 2021
The R&D SME Tax Credit Cap will be introduced from April 2021. These measures have been confirmed in order to prevent abuse of the R&D SME scheme and deter fraudulent claims. The cap was originally due to be introduced on 2020 but was delayed due to Covid-19.
From 1 April 2021:
- The amount of payable credit that a loss-making company can receive through SME R&D tax relief will be capped at three times their PAYE and NIC liability plus £20,000.
- Claims based on tax years ending before April 2021 will not be affected. If the tax year straddles this date (as it will for most), an apportionment will need to be made, applying the old rules to the previous accounting period and the new rules to the new accounting period.
- There will be a £20,000 minimum claim threshold below which the cap will not apply. Therefore a company making a small claim for payable credit below £20,000 will not be affected by the cap.
- The large company scheme ('RDEC') in unaffected by the cap. As are companies that receive their SME R&D relief by way of a reduced corporation tax bill (as opposed to the cash credit).
- A company will be able to include related party PAYE and NIC liabilities attributable to the R&D project when calculating the cap and these will be subject to the 300% multiplier.
- Businesses will be exempt where a two-stage test is met:
- The company's employees are creating, preparing to create or actively managing intellectual property, and
- the company's expenditure on work subcontracted to, or EWPs provided by, a related party is less than 15% of the total R&D expenditure of the company.
The government's policy paper on the cap can be found here.