The Government has made recent changes to the Research and Development tax relief for small and medium-sized (SME) enterprises.
Budget 2018
Announced in the 2018 Budget, for accounting periods beginning on or after 1 April 2021 R&D tax credit limited to £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance liability for the period for SMEs
However, company is exempt from the cap if:
- the company’s employees are creating, preparing to create or managing Intellectual Property (IP) i.e. The claimant company can provide proof that it is actively managing the IP arising from, or expected to arise from, the R&D project
and
- the company does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to connected parties; or on the provision of externally provided workers (EPWs) by connected parties.
Who is affected by the PAYE/NIC cap?
- SME businesses with low or no payroll expenditure.
- SME businesses planning to claim a payable R&D tax credit over £20,000.
- Recharging personnel costs between group entities.
- Subcontracting R&D work between related parties.
- Actively managing IP outside of the UK.
Budget 2021
The Government also announced several changes in the 2021 Budget that will be made with effect from 1 April 2023 which includes the following:
- Qualifying expenditure will include costs on data and cloud computing,
- Rules will re-focus on innovation in the UK, potentially excluding overseas R&D to be excluded, and
- Administration of the regime will be made to make anti-avoidance deterrents more robust
If you have any questions about the recent changes, please do not hesitate to contact FKGB.
