Back in March, the UK Government released the details of their 2021 Budget, and it’s a mixed picture for small to medium enterprises (SMEs). One of the most critical changes in the policy is that it will restrict the tax benefit companies will receive in Research and Development (R&D) Tax Credits, based on their workforce.
While we have written a previous blog on all changes within the 2021 Budget, below we focus on the upcoming cap on how much companies can claim for their 2021 R&D Tax Credits and beyond. What could this mean for your business?
What is the PAYE cap and why is it there?
The PAYE and NI cap came into effect on April 1st 2021, and the companies most likely to be affected are those with very few employees yet working with more subcontractors either Uk-based or internationally. This cap limits the amount a business can claim to £20,000 + 300% of their total NI and PAYE contributions. That means that if, for example, your combined NI and PAYE contributions came to £30,000 for the financial period, you could claim a maximum of £110,000 in R&D Tax Credits.
The cap is being introduced to try and limit the damage done by abusers of the system, whereby companies make false claims simply to extract money from the government. Whilst it’s a laudable aim, it looks likely that many small start-ups are going to be deprived of much-needed funds and unable to undertake ambitious R&D projects.
Caveats and exemptions
While it may appear as though this could affect a lot of business within the UK when making R&D Tax Claims, there are a few features to the 2021 Budget which will ensure not all companies have their claims capped. The £20,000 buffer means that the first £20,000 of a tax benefit will be exempt from the cap. Any claims worth less than that will be completely uncapped. Above that limit, the maximum amount of tax benefit you can receive will equate to £20,000 + 300% of your total NI and PAYE contributions. This £20,000 financial cushion is designed to help small companies with few or no employees, or where the director is taking little or no salary.
It’s worth noting that for companies which have not yet claimed their 2019 & 2020 R&D Tax Credits, your claims will be exempt from the new cap, so it’s even more important that you file these claims as quickly as possible so that you do not lose out on the additional tax benefit.
If your 2021 Year End is soon approaching and need your R&D Tax Claim fast-tracked, Claim Capital has a priority service which can see both the financial and technical reports completed and submitted to HMRC within 3-5 working days.
Feel free to read our R&D Tax Credit Guide to explore whether you're eligible, or if you wish to speak with one of our team to check your eligibility or get your claim work underway, arrange a free consultation call with our team and they'll come back to you within the hour.