What is the latest on R&D tax credits?

As the finance Act provisions for improved R&D tax relief for large companies were passed in Parliament, the government extended the consultation period on R&D tax credits for small or medium sized enterprises (SMEs).

Back in the March Budget, the Chancellor announced the following:

1. the rate of R&D expenditure credit (RDEC) would increase from 12% to 13% from 1 April 2020;
2. the government would consult on whether expenditure on data and cloud computing should qualify for R&D tax credits; and
3. the introduction of a PAYE cap on the payable tax credit in the R&D schemes for SMEs would be delayed until 1 April 2021, with a consultation on changes to the cap's design to bolster anti-avoidance provisions, whilst ensuring that eligible businesses can access the relief. In the meantime, this provides an extra year of uncapped claims.

Finance Bill (now Act)

As per the Budget measure, the clause in the Bill increases the RDEC rate from 12% to 13%. For profit making companies this reduces their corporation tax bill. However, companies with no corporation tax liability can still benefit either through a cash payment or a reduction of tax, or other duties due.

It was disappointing that the while this rate was being increased, there was no increase for the separate R&D SME regime. The government argues that the SME scheme is already very generous, giving 2.3 times the tax reduction for the R&D spend, and 14.5% payable credit where there are losses made.

So the clause was agreed without change.

PAYE cap

As regards the PAYE cap, that consultation was launched on 19 March 2020 and was due to close on 28 May 2020, but has now been extended by three months to 28 August 2020.

R&D tax reliefs, including the SME scheme, support businesses to invest in innovation. But to prevent abuse of the SME scheme, the 2018 Budget announced that the amount of payable tax credit a qualifying loss-making business could receive would be capped at three times the company’s total PAYE and NICs liability for that year.

So an extra year of uncapped claims.

The government is now looking to hear from businesses who believe they will be affected by the PAYE cap 

Capitalise scheme

Bishop Fleming has a team of fundraising specialists ready to advise clients through Coronavirus. As a partner of Capitalise, we have access to 100+ lenders to provide businesses with the opportunity to secure the right kind of funding. Our Capitalise team will support you through all stages of the funding process.

Find out more about raising finance through Capitalise here.