R&D tax credit cap explained

So what’s changed?

From April 2021, the amount of credit that can be paid to an SME will be capped.  The new cap will limit the amount that can be claimed to £20,000 plus three times the company’s “relevant expenditure on workers”.

What are relevant expenditure workers?

Relevant expenditure workers are defined as:

• the company’s own NIC and PAYE liabilities for the period and;
•  certain PAYE and NIC liabilities of connected persons doing subcontracted R&D for, or providing workers to the company.

The company’s own liabilities

The company’s own liabilities is not capped to just the liabilities incurred as a result of R&D, all PAYE and NIC liabilities for the period should be considered.  A number of items should be disregarded, for example child tax credit to calculate the total liabilities for the period.

PAYE and NIC liabilities for a period are defined as amounts which the company is required to pay to HMRC in the period.

Why has this change been brought in…

We haven’t considered this section as it is unlikely to be applicable to most startups, tech companies and small businesses.  If you want to know more though, please get in touch.

Points to consider

• there are specific exemptions available for the cap.
• losses on R&D activities can still be carried forward into the next tax year.
• consider when you accounting period ends and how your R&D submission may be impacted.
• seek professional advice on how this change will impact your R&D tax claim.

How can Venn Accounts help?

Here at Venn Accounts, we build strong partnerships with our small business clients, and we can become your long-term strategic partners, providing you with the professional, cloud-based accounting support you need for saving on tax expenses – helping make for more positive company year end accounts.

Find out more about how we can help by calling us on 020 8088 2590, email enquiries@vennaccounts.com or fill in our contact form, and we’ll be in touch as soon as possible.