HMRC publishes policy paper on R&D tax relief rules
HMRC have published a policy paper covering a change to the research and development (R&D) tax relief rules for small and medium-sized enterprises. The measure in question limits the amount of payable R&D tax credit which a SME can claim to £20,000 plus 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NICs) liability for the period. Exemptions will be made to a company which is a) involved with Intellectual Property (IP) and b) does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons.
In terms of the policy taking effect, the measure will apply to accounting periods on or after 21st April 2021. The R&D tax relief for SMEs is set out in Corporation Tax Act (CTA) 2009 Part 13 Chapter 2 (ss 1043 – 1062). Estimated operational costs of implementing the policy for HMRC stand in the region of £2.5m. R&D tax reliefs support innovation and form part of the Government’s Industrial Strategy which is aiming for the UK spending 2.4 per cent of GDP on R&D by 2027. The tax credit afforded to SME’s (14.5% of the R&D element of their surrendered losses) can unfortunately be a target for fraud and abuse. The new policy aims to tackle this issue, ensuring that any relief is provided to those who should receive it, without the threat of harassment. It will ensure an immediate cash-flow benefit to SMEs due to the tax credit, thus boosting firms who invest in R&D.