New R&D Tax credit cap for SME’s

There are two schemes for claiming R&D tax relief – the Small or Medium-sized Enterprise (SME) Scheme and the R&D Expenditure Credit (RDEC) Scheme for large companies. The SME scheme offers more generous reliefs to qualifying companies. The amount of R&D tax relief available depends on the total qualifying spend on R&D activities. A company is defined as an SME if staff headcount is less than 500, and turnover is less than €100m or the balance sheet total is less than €86m. SMEs can claim R&D tax credits of 230% on qualifying expenditure or for loss making companies claim a tax credit worth up to 14.5% of the loss capable of surrender.

For accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance Contributions liability. The new rules have been designed to prevent a growing number of fraudulent claims by companies claiming for bogus R&D expenditure. The new rules will not affect companies claiming less than £20,000 per year.

In order to minimise the effect of the cap on genuine R&D expenditure, a company is exempt from the cap if:

• its employees are creating, preparing to create or managing Intellectual Property and
• it does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers by, connected persons.

Please get in touch with us if you need help claiming R&D tax relief. Speak to your usual Farnell Clarke contact or email info@farnellclarke.co.uk and we can guide you through the process.