R&D scheme protected from exploitation
Over recent years, there has been growing concern that the R&D scheme has been open for abuse, with the potential for companies to route R&D spend through the UK in order to benefit from the scheme’s generosity.
On 12 November 2020, the Treasury published its draft tax legislation designed to prevent abuse of the R&D tax credits scheme for SMEs. This follows a series of consultations where experts from industry and advisers to R&D companies, including Moore Kingston Smith, raised concerns that any such move could hamper genuine claims.
We are pleased to see that these concerns have been considered in the drafting of this new legislation, and it is unlikely that many genuine claimants will be hampered by them.
The new legislation
Payable credits under the R&D SME scheme will be capped at an amount equivalent to £20,000 + 300% of the total PAYE + NIC liability for the claimant company. Claimants will also be able to include 300% of any R&D attributable PAYE & NIC of related parties
There will be exemptions from this cap for companies that meet two criteria:
- Where the claimant’s employees are creating, preparing to create or actively managing intellectual property, and;
- Less than 15% of the claimant’s overall R&D spend is on workers provided by, and work contracted out to, related parties.
The draft legislation is set to have effect for accounting periods beginning on or after 1 April 2021.
R&D tax relief
The UK’s R&D tax relief regime is one of the most attractive in the world. Since its inception in 2000, UK R&D tax relief has had a significant impact on businesses engaging in innovative projects. The government’s ongoing drive to encourage businesses to invest in R&D has resulted in increased rates of tax relief available to UK companies, with the repayable credit under the SME scheme now standing at 33.35% of qualifying R&D expenditure.