Preventing abuse of the R&D tax relief for SMEs: Second consultation

Preventing abuse of the R&D tax relief for SMEs: Second consultation

Comments from Beavis Morgan:

At Beavis Morgan, we believe in the integrity of the Research and Development (R&D) Tax Relief scheme and welcome changes to avoid abuse thereof, but we are also committed to helping our clients make the best use of R&D credits as a valuable and legitimate tax relief to support growing businesses across a wide range of sectors.

Following a consultation process, HMRC has recently confirmed the following PAYE cap will be introduced from 1st April 2021 for payable claims:

  • To claim more than £20,000 of payable tax credit, a company’s maximum claim is 300% of its entire PAYE and NICs liability for that year in addition to the £20,000 threshold (£20,000+ 3*PAYE/NICs).
  • Payment claims below £20,000 will not be affected.
  • There is a caveat to allow uncapped claims for managing the IP and subcontracting less than 15% of R&D work.

This cap will only limit the amount of tax refunds that can be received and any balance can still be carried forward and used against future profits.  Whilst the measures that will be introduced should have a minimal impact on genuine claims the changes may affect some companies such as those that rely heavily on freelancers or are internationally structured.

In practical terms, companies may want to think about bringing some freelancers onto the payroll. Many SME’s also continue to remunerate owners/directors partly by way of dividend – they may want to change the balance towards higher salaries and lower dividends to shift the tax onto the company’s PAYE bill rather than the individual’s self-assessment personal tax.  This will have the double benefit of increasing the value of the Qualifying Expenditure for R&D purposes, and increasing the PAYE cap mentioned above.

Our team of business advisers and tax professionals at Beavis Morgan are currently working with companies who may be impacted by these changes, to help them plan and adjust so that they can avail of their full R&D Tax Relief entitlement going forward.

If you have any questions on these changes to the R&D Tax Relief scheme or are concerned that your future claims may be impacted, please contact Rebecca Heap via email at to discuss how we can support your business.

Click here to view the Government’s consultation paper in full.