We’re at the point where calling a Budget “a bit of a mixed bag” isn’t really saying anything anymore. What the taxman gives with one hand, he generally finds a way to take with the other. One little wrinkle tucked away in the UK’s final Budget as a member of the EU was the return of the R&D Tax Credits cap. Essentially, businesses making a loss and claiming payable tax credits under the SME scheme will have a limit slapped on their claims, based on their PAYE and NIC liabilities.
Of course, this isn’t exactly a new idea. In fact, it dates right back to the original R&D rules. The twist now is that the cap is a little less restrictive than it was before its abolition in 2012. Back then, the amount of PAYE/NIC payments you were making formed the hard limit of what you could claim in payable tax credits. When the new cap kicks in after April 2020, the limit will be three times what you’re shelling out in those payments.
The point of this, as with much of HMRC’s recent buckshot-blast of new rules and systems, is to crack down on avoidance and false claims. That’s not a bad thing in itself. Like any other government scheme, R&D Tax Credits only work well when everyone’s playing by the rules of the game. Abuse by “artificial corporate structures” (where claims are made by entities without qualifying activity or UK employees) is poison to the system, and it’s a smart move to attack it. The trouble comes when that sledgehammer swing cracks more than just the intended nuts.
The original cap was criticised for unfairly hitting SMEs with legitimate claims to make. Businesses with fewer employees or a largely self-employed workforce were losing out through no fault of their own. While the impact on those businesses will be less this time around, they’ll still be feeling the blow under the new system.
A few points to keep in mind:
- Any losses you can’t claim for can still be carried forward as normal.
- If your business relies on the payable tax credit in any significant way, your cash flow needs to be a key concern now.
- This isn’t the only crackdown taking place on businesses using self-employed workers. The current public sector off-payroll rules will be rolled out to private firms in 2020. From then on, it will be the end client’s responsibility to assess contractors’ employment status.
RIFT R&D’s Sarah Collins says, “One of the key obstacles preventing UK businesses getting the tax credits their R&D earns them is the complexity of the system. So many never realise that they’re even eligible, and even those that do often end up with far less then they’re entitled to. The R&D scheme is designed to reward innovation and encourage investment. When it works, it’s the most powerful tool of its kind – and anything getting in the way of that is a problem. At RIFT, we’ll continue working hard to make sure our customers always get the credit they deserve.”
Get credit for your business innovation with research and development tax credits claim assistance from RIFT. Find out more about types of HMRC R&D tax credits, deep dive into the world of business innovation with our insights, or contact RIFT R&D today to find out how we can maximise your benefits.