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New R&D Tax Credit Cap imposed for PAYE

New R&D Tax Credit Cap imposed for PAYE

Robert Macdonald

One of the major points of interest in the Budget was that a detailed review of R&D tax credits is to be undertaken by the Government. The review’s purpose is to ensure that the reliefs remain up to date, competitive and well-targeted. On that note, the PAYE cap, which was first mentioned in the 2018 Budget, is finally becoming law for accounting periods beginning on or after 1 April 2021. 

This cap is being introduced to target very specific abuse where R&D tax credit claims were being made by companies who had very few or no UK employees and were claiming mainly for subcontractor costs. The cap only relates to claims for the payable credit by SMEs (e.g. where trading losses are surrendered for a cash payment). 

The cap will apply where the payable credit is more than £20,000 plus 3 times the PAYE & national insurance liabilities. There is an exemption from the cap where a company is creating, preparing to create, or managing IP, and where less than 15% of the R&D spend relates to connected subcontractors or externally provided workers. The above points are designed to stop the cap from impacting claims by genuine trading companies (a small number may still be caught by the cap).

Extension to Qualifying Costs 

There was also reference to the inclusion of hosting and data costs as qualifying costs for R&D tax credit purposes. This will now be considered as part of the wider review of R&D tax credits mentioned before.

If you require any further details about these changes, please contact your local Moore (South) office