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Capping payable tax credit for SME R&D tax relief

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HMRC is consulting until 24 May 2019 on options being considered for a cap on the amount of payable tax credit companies will be able to claim under the SME R&D tax relief scheme from April 2020. The government announced at Budget 2018 it would legislate in Finance Bill 2020 for the cap to be set at three times the total PAYE and NICs liability of the loss-making company for the relevant year.

Since a previous PAYE cap was removed in 2012, the government has observed a substantial increase in fraudulent claims. These take two main forms, involving companies set up to claim payable tax credit even though they undertake no R&D, including in some cases expenditure outside the UK routed through UK entities with little or no employment or activity.

The consultation now proposes some additional options, including:

  • setting a threshold for claims below which the cap would not apply, to reduce the administrative burden for the smallest claims;
  • aggregating the PAYE liabilities of other group companies or connected parties, where workers are engaged in an R&D project subcontracted by the company to these group or connected parties, and possibly including PAYE and NICs related to any externally provided workers used by a company; and
  • allowing companies to carry forward unused losses for up to two years to be surrendered in exchange for a payable tax credit against future PAYE liabilities.

The government says it would also welcome other proposals on how to apply the cap, or on how to prevent abuse of the payable tax credit more generally.


Issue: 1438
Categories: News