Small businesses could see R&D tax relief capped

George Hay Chartered Accountants

Access to valuable tax relief, for small businesses investing in research and development (R&D), could be restricted as a result of attempts to crack down on fraudulent claims, where there had been no R&D activity.

R&D tax credits, paid to companies investing in innovation, are currently worth around £3.5bn a year but the government suggest that over £300 million has been lost to malpractice.

The scheme is especially generous to small and medium-sized enterprises (SMEs), affording valuable backing to loss-making firms that might otherwise find it a struggle to invest.

To help prevent abuse of the SME scheme, Budget 2018 announced that the amount of payable tax credit that a qualifying loss-making business can receive through the relief, in any one accounting period, will be capped.

The government plans to limit the value of the credits available to three times the value of a company’s pay-as-you-earn (PAYE) and national insurance (NI) liability, in the year that the claim is made.

There are concerns amongst professional bodies and industry experts that the measures could be detrimental for genuine businesses, particularly the very smallest businesses and start-ups who employ very few staff and, consequently, have minimal PAYE and NI liabilities.

The change is expected to come into effect for accounting periods which commence on or after 1 April 2020.

HMRC’s consultation on how the cap would be implemented ended on 24 May 2019, a response to which should follow in the coming months.

Phil Blackburn, Tax Partner at George Hay, said: “The principle purpose of research and development tax relief is to encourage innovation.”

“Clearly the tax fraud that the government has identified should be stamped out, however I would argue that there must be an alternative to withdrawing support from genuine claimants.”

“We hope the government considers responses to the consultation carefully, before implementing the policy.”

How can George Hay help?

Our experts can explain the complex rules surrounding R&D tax credits, in language you can understand, and they can assist you with preparing your claim, to ensure you have the greatest chance of success.

We can also advise you on issues like improving your record keeping, so that you can keep track of all the activities involved in the R&D process, and the costs, so that all eligible expenditure is claimed for.

We make sure we understand our clients’ businesses as a whole, so we will not just look at your R&D in isolation.

We will build R&D into your business planning so that you can use tax credit benefits as part of an ongoing strategy to grow your business and keep moving forward.

To discuss your circumstances in more detail with us today, call 01767 315010 or email