The UK government has released new draft legislation setting a new cap on R&D tax benefit that would take effect in April 2021.
Work must be done as part of a specific project that aims to improve science or technology in order to qualify for R&D tax reduction. Small and medium-sized businesses (SMEs) can get an extra 130 percent tax break on qualified expenses. Profit-making enterprises will save 19 percent on this additional investment, while loss-making companies will receive a 14.5 percent repayable tax credit (subject to limits).
For cash-strapped enterprises, the possibility of a refund has brought much-needed capital. During the coronavirus pandemic, we saw the potential of this as an increasing number of small businesses took advantage of the tax worth of their unique work.
The alleviation is especially beneficial to small businesses with limited resources. Frequently, the director-shareholders are unable to pay themselves until they have completed their development work and built a stable business.
The government declared in Budget 2018 that it would introduce a cap on the repayable tax credit tied to the total PAYE (Pay As You Earn) and NIC (National Insurance Contributions) bill to combat fraud by fraudulent firms. The idea was met with strong opposition, which was followed by two rounds of deliberation. The proposed legislation published on November 12th addressed some of the concerns voiced.
The repaymentable tax credit is now limited to £20,000 plus 300 percent of the company’s entire PAYE and NIC liability for the period. In other words, businesses that request a repayable credit of less than £20,000 will be unaffected. Any losses will be carried forward and eased in future profit-making periods where the cap applies.
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If a corporation meets the following criteria, it will be excluded from the cap:
It does not spend more than 15% of its qualifying R&D expenditure on subcontracting to connected persons or paying for externally provided personnel from connected persons, and its employees create or manage intellectual property.
For accounting periods beginning on or after April 1, 2021, the new cap will apply.
We can assist you if you suspect you may be eligible for R&D tax relief. A free introductory consultation is simple to organise. We can speak with you through video call, phone, or in person to learn more about the work your organisation has done and the possibility of a claim.
How TaxAdvisor UK can help
At TaxAdvisor UK , our experts will provide you 30 minutes free consultation and help you in managing all your tax and accounting work. Speak to our expert accountants, tax advisor on (0203) 5381276 or fill an online form today. We can have a consultation session over the phone, virtual or face to face meeting and will provide you no obligation fixed quote.
