Draft Legislation Published for Proposed PAYE/NI Cap on R&D Tax Credits
Draft legislation for the long-proposed PAYE and NI cap on payable tax credits was issued on 12th November 2020. The new rules, which aim to prevent abuse of the R&D tax credit scheme will affect accounting periods starting on or after 1st April 2021.
Budget 2018 announced that, to deter abuse of the scheme, the amount of SME payable R&D tax credit that a business can receive in any one year would be capped at three times the company’s total PAYE and NICs liability.
The government consulted on the application of such a cap in spring 2019 and a further consultation took place in summer 2020.
The newly drafted legislation limits the amount of payable R&D tax credit which a SME can claim to £20,000 plus 300% of its total PAYE and NICs liability for the period and, potentially, three hundred per cent of some PAYE and NIC of connected companies.
A company will be exempt from the cap if:
- its employees are creating, preparing to create or managing Intellectual Property (IP) and
- it does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of Externally Provided Workers (EPWs) by, connected persons.
In recent years, HMRC identified artificial corporate structures set up deliberately to claim payable tax credits despite there being little employment or activity in the UK. The exemption criteria are designed the ensure that genuine R&D claimants will not fall foul of the newly introduced legislation.
It’s fair to say that YesTax has been sounding off in recent months about how the R&D tax credit scheme is being abused. The new measures are a small step in the right direction to ensure genuine claimants are not prevented from claiming this valuable tax relief.
If you have any questions about the new legislation, please contact us at hello@yes.tax