Upcoming changes to the amount SMEs can claim as payable R&D tax credits

John Moore, April 2nd, 2019

Following the announcement in the 2018 Budget, and the recent Spring Statement the government have recently published the consultation document “Preventing abuse of the R&D tax relief for SMEs”.

By way of background, HMRC have identified and prevented fraudulent attempts to claim the SME payable credit totalling over £300m where companies were set up to claim the payable tax credit even though they had no R&D activity or where structures had been deliberately set up to claim the payable tax credit despite there being little employment or activity in the UK.

In the budget 2018 it was announced that the Government planned to cap the amount of payable credit that a company can claim under the SME scheme to three times the company’s total PAYE & NIC liability for the year. It is intended that this will be implemented from April 2020.

The Government have confirmed this cap and are asking for responses to the consultation concerning how the cap is applied.

Consultation suggestions

The consultation document makes a number of suggestions upon which comment is sought:

  • A threshold for the payable tax credit claim below which the cap will not operate. The document includes worked examples of the operation of the cap in which a threshold is used/suggested of £10,000.
  • For groups of companies, or those with connected parties, the group could be restricted to one below threshold claim per group. This is to stop such groups making numerous small claims below any threshold set.
  • In certain circumstances the government is considering allowing some of the PAYE & NIC liabilities of other group companies to count towards the three times cap figure. It is proposed that an element of the PAYE & NIC contributions of workers engaged in an R&D project as subcontractors or as Externally Provided Workers by the company could be included.
  • Where the cap operates the company will claim the payable credit up to the value of the cap and carry forward any losses not surrendered for the capped payable credit in the normal way. The government is considering allowing companies to access the losses carried forward for the payable credit in a future year when & if the company builds up enough PAYE & NIC liabilities. It is suggested that there would be a limited period of time, two years, in which the company would be able to surrender these carried forward capped losses in exchange for the payable credit.
  • The government are looking to understand whether the proposed cap will affect genuine companies and what would be the characteristics of these genuine companies that would enable it to refine the application of the cap.

The consultation is open until 24 May 2019. Companies and their representatives now have an opportunity to take part in the consultation and to initiate conversations regarding the proposals set out above and indeed any others should be considered. Kingly Brookes will be taking part in this consultation process. If you would like to contact us to discuss the potential application of the cap to your claim process, or would like us to make representations as part of the consultation then please contact John Moore of Kingly Brookes on 0207 292 8850 or john.moore@kinglybrookesllp.co.uk

This briefing is prepared by Kingly Brookes LLP, a limited liability partnership. For further information on any of the material contained in or referred to in the briefing, please contact us. This briefing note is intended to keep our readers up to date with the developments in this area, but it is a general guide only and is not intended to be a comprehensive statement of the law and practice in this area. No liability is accepted for the opinions it contains or for any errors or omissions.