R&D Tax Relief for SME’s – Cash back from HMRC

Many SME’s are tackling the economic impact of Covid-19 by looking again at their business model and making adjustments to the “new normal”. These changes may provide an opportunity for businesses to access one of the governments more generous non-Covid support programmes – the R&D Tax Relief scheme for SME’s.

The R&D Tax Relief scheme allows SME companies undertaking qualifying research and development projects to claim a cash payment from HMRC of up to 33% of the project costs, even where the company is making losses.

For profitable companies the tax relief is still more generous providing a tax deduction of 43.7% for project costs compared to 19% for non-R&D tax deductible costs.

Many SME’s are surprised that qualifying research and development projects applies to their business – the expert team at WSM are keen to speak to any SME’s which want to find out if they have a project which might qualify.

Unlike the uncertainty surrounding the continuation of Covid support programmes, HMRC have recently confirmed R&D Tax Relief is here to stay – and may possibly become even more business friendly following Brexit as the scheme definitions can be adapted to meet UK requirements without requiring EU approval.

The Department for Business, Energy & Industrial Strategy (BEIS) has already published its R&D Roadmap with promises to simplify systems and reduce red tape to increase participation in R&D and the R&D Tax Relief scheme.

Brexit may also allow the government to make the R&D Tax Relief scheme even more generous as the UK is no longer subject to the same State Aid rules as EU Member States.

One change has already been flagged by the government to reduce abuse of the current scheme and comes in to effect from 1 April 2021: Claims for the cash repayments in any one year will be capped at £20,000 plus three times the company’s total PAYE and NIC liability for the period.

Exemptions to the cap have been agreed:

• Claims for a payable credit below £20,000 will not be affected by the cap;
• Related party PAYE and NIC liabilities attributable to the R&D project can be included in calculating the cap; and
• A claim will be uncapped if it meets two tests:

• • the company’s employees are creating, preparing to create or actively managing intellectual property (IP); and
  • expenditure on work subcontracted to, or externally provided workers provided by, a related party is less than 15 percent of total R&D expenditure.WSM’s expert team will be pleased to hear from you if you have any queries or want to find out more about R&D Tax Relief – please contact us:

• • Simon Marsh                                 020 8545 7608 simon.marsh@wsm.co.uk
  • Ramann Vasanthakumar               020 8545 7629 ramann.vasanthakumar@wsm.co.uk

The cap will impact those SME’s claiming cash repayments which have limited UK staff and that subcontract substantial levels of R&D to connected or third parties. Any loss making SME companies that have low UK PAYE/NIC liabilities should consider if they may be affected by the cap and whether they can qualify for the above mentioned exemptions.