The amount of payable Research and Development (R&D) tax credit a small or medium sized enterprise (SME) can claim will be capped at £20,000 plus three times the company’s relevant expenditure on workers, for accounting periods starting on or after 1 April 2021.

The SME payable R&D tax credit provides support to loss-making companies, allowing them to claim a tax credit worth up to 14.5% of their surrenderable losses, receiving an immediate cash flow benefit.

This measure has been put in place to ensure the tax credit only goes to those businesses who should receive it, inhibiting the opportunity for the scheme to be used fraudulently.

Key points of the new measure

  • Limits the amount of payable R&D tax credit to £20,000; plus
  • 300% of its total Pay as you Earn (PAYE) and National Insurance Contributions (NICs) liability for the period (not just PAYE and NIC associated with its R&D); and
  • A company is exempt from the cap if its employees are creating, preparing to create or managing Intellectual Property (IP) and it 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.

Legislation implementing the measure will be included in the Finance Bill 2021.