R&D tax credits: PAYE cap implemented in 2021

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But there is no need to panic as most companies, including those in biotech and tech, will be minimally affected by the changes. 

The PAYE cap legislation around SME R&D claims has been released by HMRC (November 12). Crucially, the exemption to the cap that we, together with the BIA, lobbied hard for, has been included. 

The key takeaway messages from today’s HMRC announcement are as follows: 

  • The changes will be introduced for accounting period beginning on or after April 1, 2021. For a December year end this means the cap rules will be in force for 2022 onwards. 
  • The exemption should either exempt or only slightly trim most R&D claims. There are two requirements for the exemption to apply:

    – the company needs to create or manage the IP generated from the R&D activity. This test should be easy to meet for genuine claimants; and

    – the company cannot have more than 15% of its spend with connected parties – for example, other companies within the group. This test will either be met or can usually be met by adjusting the amount claimed to be below 15%.

We lobbied for no cap but it is a good outcome to be listened to during HMRC’s consultation process. A huge thank you to all of you who took the time to provided feedback to us during the consultation. 

Colin Hailey
+44(0)7855 502917

About CT Team

The tax advisors to biotechnology and technology companies