HMRC have introduced a PAYE/NIC cap to repayable R&D tax credit claims made by SME’s for accounting periods starting after 1 April 2020.  This cap will restrict qualifying R&D expenditure for loss making companies to 3 x the total PAYE and NIC liability in that accounting period.

The cap only applies to tax credits, and will therefore only affect companies looking to surrender tax losses for a repayable credit.

Primarily designed as an anti-avoidance measure, targeted at companies who have structures set-up deliberately to claim large tax credits, despite having minimal employment activity, there will be victims of the cap – for example, start-up companies, where significant development costs have been incurred through sub-contractors rather than employees.

If you would like to discuss the potential impact on your organisation, and give us the opportunity to mitigate this, please contact a member of our Corporate Tax Team on either 01788 539000 or 0116 261 0061.