R&D Tax Credits – PAYE and NI Cap Changes Introduced on 1 April 2021
As of 1 April 2021, HMRC have introduced a cap on payable R&D tax credits for small or medium sized enterprises (SMEs).
17 Dec 2021
HMRC recently announced changes to the PAYE cap on R&D tax credits claims, designed to limit the amount businesses can claim.
RDvault has analysed the new R&D tax credits rules relating to PAYE and NI, which came into effect on 1 April 2021.
Here are the major highlights.
- If your R&D claims (cashback) are £20,000 or less (over a 12 month period), then these rules will not affect the size of your R&D tax credit claim.
- If you remain a loss making company and your qualifying R&D expenditure is less than £60,000, per annum, then these rules won’t affect your R&D claim size going forward.
- The maximum amount of R&D tax credits (cashback) a company can claim is £20,000—plus three times the total PAYE and NI liability of the business, in each accounting period.
- Certain businesses are exempt from these rules (please see ‘Exemptions’ below).
- If you are a loss making company, have very few or no employees, and your R&D spend is £60,000 or more, then you are likely to be affected by these changes.
- If you're spending more than £60,000 on R&D expenditure, with the majority of costs attributed to subcontractors or freelancers, then you are likely to be affected by these changes.
- Changes to R&D tax credit rules came into effect on 1 April 2021.
- These rules only affect the R&D tax credits SME scheme, the RDEC scheme remains unaffected.
What is the new PAYE and NI R&D tax credits cap?
The PAYE cap limits the amount of claimable R&D tax credits to be:
- £20,000, plus
- Three times the company’s total PAYE and NIC liabilities in the period.
PAYE R&D tax credits cap examples
Here's a few examples to help simplify things.
Your company’s total PAYE and NI liability for the accounting period is £60,000. In this scenario, the maximum amount of R&D tax credits you can claim is:
£20,0000 plus 3 x £60,000
In this scenario, the maximum you can claim is £20,000 plus £180,000 which is £200,000.
Alternatively, your PAYE and NI liability is just £2,000. In this instance, the maximum amount of R&D tax credits you can claim is:
£20,000 plus 3 x £2,000
Therefore, the maximum you can claim is £20,000 plus £6,000 which is £26,000.
Under pre 1 April 2021 rules, assuming the R&D qualifying expenditure for this company is £100,000, and it is a loss making company, the business would have been able to claim £33,350 in R&D tax credits. However, there are exemptions to the process.
There are two exemptions to the new legislation:
Company employees are taking or preparing to take steps for the company to create IP, creating IP or managing IP by making decisions in relation to the development or exploitation of the IP, and the company has the right to exploit the IP or jointly with others.
The amount a company pays to connected companies for subcontractors and externally provided workers is no more than 15 percent of the total R&D qualifying expenditure.
What happens after 1 April 2021?
Changes to the cap will only affect accounting periods starting either on or after 1 April 2021, with all future accounting periods subject to the new R&D tax credit rules.
RDvault software update
We've closely studied the changes to the R&D tax credit legislation and have made sure these amendments are reflected in the platform. Of course, if you need any extra help, we're ready and waiting.
Here to support your claim
Affected by any changes to the R&D tax credits PAYE cap, or would like to understand how these changes may impact your future claims? Simply get in touch with our team today. We’re ready and waiting to have an open and honest chat about your claims.
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