In the Budget of 2018, the government planned to cap R&D tax credits. There were fears that this would prevent legitimate start-ups and small businesses from receiving such benefits. However, a recent consultation may have put forward a possible solution.
The R&D tax credit is very popular, providing £3.5bn of relief in 2016/17 increasing from £350m in 2010. However, HMRC stated that this increase had also led to an increase in fraudulent claims to the tune of £300m by “artificial corporate structures.” The government solution to this was announcing that a cap would be introduced in April 2020.
The cap is stated “the amount that a loss-making company can receive in R&D tax credits will be capped at three times it’s total PAYE and National Insurance contribution liability.” Many quickly stated that start-ups are lossmakers, having low or nil salary costs as they rely on subcontractors and/or many directors taking no remuneration when starting up a business. The result of this would be that these new businesses could not claim R&D tax credit as “if you pay nil PAYE or NICs liability, then obviously three times nil is nil.”
Though HMRC need to reduce fraudulent claims, it needs to ensure that genuine research businesses are not penalised by the Finance Bill 2019-2020.
The consultation document states that it is aware of this situation and does wish “to keep any impact on SME’s to a minimum and committed to consult on the cap before it is implemented.” HMRC have put forward a compromise in the consultation that there would be a minimum level they would pay up to before the cap applies. Since publishing the initial blog, this has been set at £10,000. There are fears that some businesses will still be unfairly caught out.
If you need help with any R&D claims, then please contact us on 0113 286 4486
Source: Accounting Web
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