Tax Hmrc 2358937B

Changes to R&D Tax Credit payment thresholds from April 2021

Changes for R&D Tax Credit Payments from April 2021

The rules regarding R&D tax credit claims for the SME scheme are changing from April 2021 and it could affect the ability of many small businesses to obtain this important tax relief. HMRC is looking to introduce a new PAYE cap on qualifying expenditure from this date, which will attempt to prevent abuse of the R&D tax credit system.

  • The change limits the payable TAX credit to £20,000 plus 300% of the combined PAYE and NIC.
  • The PAYE & NIC is for the total the company spends on all staff, not the totals for R&D employees.
  • PAYE & NIC from subcontracted R&D or EPW’s providers can be included in that 300% figure, so long as the companies are connected and the value is less than 15 per cent of its overall R&D expenditure.
  • The measure will have effect for accounting periods beginning on or after 1 April 2021.
  • This is only applicable to tax credits, not tax refunds.

A company making a small claim for payable credit below £20,000 will not be affected by the cap, but enterprises which subcontract it's R&D activities to non connected companies and individuals will potentially no longer be able to claim the full credit. 

However, a company’s claim will be exempt from the new measures if it the business’s employees are creating, preparing to create or actively managing intellectual property (IP).

The new rules also create additional checks and processes when making a claim and so businesses should seek professional advice from experienced R&D tax advisers when assessing R&D projects.

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