Important R&D Tax Credits update

The R&D Tax Credits scheme is an important tax incentive for companies. The scheme for small and medium sized companies engaged in qualifying R&D work allows companies to claim an extra 130% tax deduction for qualifying expenditure.

Where a company is loss making the company can ‘surrender’ the loss for a tax refund from HMRC - very useful in start-up situations.

The Government have announced that starting from 1st April 2021 there will be a ‘cap’ on the R&D tax credit refund for costs incurred after that date.

This cap will be £20,000 plus three times the amount of PAYE and NIC collected from the company’s payroll.

This might affect companies who sub-contract their R&D work and have small payroll costs.

To give a simplified example, if a company had no payroll and subcontracted all its R&D work at a cost of £100,000 then under the current regime it would potentially be eligible for an R&D tax credit refund of £33,350. Under the new regime that refund would be capped at £20,000.

The first thing to say about this announcement is that the Government have U-turned on so many things recently that there’s no certainty that this will be the final format of any changes. The second thing is that it we at Continuum will be able to manage these changes to ensure that a company can make the most of the R&D tax regime.

If you would like further help with any of the above, get in touch with your usual Continuum contact or email info@continuum-ltd.co.uk