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.
The Government 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 new measures will limit the amount of payable R&D tax credit that an SME can claim to just £20,000, plus 300 per cent of its PAYE & NIC liabilities for the period.
A company making a small claim for payable credit below £20,000 will not be affected by the cap.
However, a company’s claim will be exempt from the new measures if it meets two tests:
• a business’s employees are creating, preparing to create or actively managing intellectual property (IP); and
• its expenditure on work subcontracted to, or externally provided workers (EPWs) provided by, a related party is less than 15 per cent of its overall R&D expenditure.
While many businesses may be unaffected by these changes, any companies that are heavily reliant on subcontracted work for their R&D projects may find that they are limited to how much tax relief they are eligible for.
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.
The team at Edwards Chartered Accountants has assisted lots of businesses with R&D tax credit claims and is standing by to support innovative companies with the new rules.
To find out how we can help you with these new challenges, please visit www.edwardsaccountants.co.uk