Good news for SMEs on the R&D Cap

The final details of proposed SME Cap (effective 1 April 2021) has been published today in draft legislation. It is good news for many SMEs who will find that they satisfy the two key tests and therefore the cap will not apply. The cap is proposed to limit the amount a loss-making SME can surrender for cash by limiting the refund to 3x the total PAYE/NIC bill.

On behalf of many of our clients James Cowper Kreston contributed to the Government’s extensive consultations (in 2019 and again this year) on the effects that the cap would have on many genuine R&D businesses who in early stages do not have a large payroll, but rely on the cash refund generated by an R&D claim.

After considering all the views put forward in the consultation, the Government is now confirming that the design of the PAYE cap will include the following features to minimise the impact on genuine businesses conducting R&D:

• A company making a small claim for payable credit below £20,000 will not be affected by the cap.
• A company will be able to include related party PAYE and NIC liabilities attributable to the R&D project when calculating the cap and these will be included in the 3x multiplier.
• A company’s claim, of any size, will be uncapped if it meets two tests. These tests require that a company’s employees are creating, preparing to create or actively managing intellectual property (IP) and that its expenditure on work subcontracted to, or externally provided workers provided by, a related party is less than 15% of its overall R&D expenditure. 

Please contact James Cowper Kreston if you want to discuss this further.

For more information on R&D tax relief and how James Cowper Kreston can help, please click here.