R&D tax reliefs SME cap changes

The Government has stated its changes to the Research and Development (R&D) tax credits system for small and medium-sized enterprises (SMEs), which aims to decrease the number of claims for projects that the system was not initially intended to cover.

The SME R&D tax credits allow loss-making businesses to claim a tax credit worth up to 14.5 per cent of the R&D component of their surrendered losses, plus obtain an immediate cash flow benefit.

Declared within the Government’s current set of tax policy announcements, these changes will apply to accounting periods which commence on or after 1 April 2021 and are designed to exempt businesses with low National Insurance Contributions (NICs) and PAYE who are carrying out genuine R&D work.

However, with these new rules in place, it limits the amount of payable R&D tax credits an SME can claim.

Additionally, after the Treasury’s consultations, the Government has introduced a cap on any claims for payable credits from 1 April 2021, and there will be a threshold of £20,000 under which the cap will not apply.

This cap is to be the threshold amount plus 300 per cent of the businesses’ total NICs and PAYE liabilities for the period.

Businesses can be exempt from this cap if they meet the following criteria:

  • The business does not spend more than 15 per cent of its qualifying R&D expenditure on subcontracting R&D to or the provision of externally provided workers.
  • The business’ employees are either creating or preparing to create or manage intellectual property (IP) – which businesses need to provide evidence of.

For more information or advice on claiming R&D tax credits, book a demo.


Eneko Igartua

Eneko Igartua is the Head of Operations at made.simplr. Originally a manufacturing engineer, he is an expert in R&D funding, having worked with R&D tax relief and grant funding from national and European sources. He is interested in helping accountancy firms expand their offering through software solutions.

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