R&D Tax Credits

Important changes and not for the better

R&D Tax credits are a rare thing in the tax code being a valuable help to companies. In brief, a company undertaking qualifying work can claim an uplift in their tax computation for qualifying expenses.

This uplift can reduce taxable profits and so save tax. If a company is loss making it can claim a tax credit refund, effectively subsidising the R&D. However, an important change takes effect from April 2020 when a PAYE and NIC cap is introduced to these refunds.

This means that from April 2020, the amount of payable tax credit that a qualifying SME business could receive in one accounting period will be capped at three times the company’s total PAYE and NIC liabilities for that year.

The practical effect

Suppose you are a small loss-making company undertaking R&D. You sub-contract much of your work (say £50,000) and take a minimal salary below the NIC threshold (say £8,000).

Under the current rules you could get an R&D tax credit refund of up to £19,343.

Under the new rules you will get no R&D tax credit refund at all.

This could obviously have a serious impact on your plans so if you think this could affect you, get in touch with me to discuss how to plan for the impact of the changes. andrew.carter@continuum-ltd.co.uk