Cap on R&D tax credit claims introduced

The Government has announced a change to the R&D tax credit scheme from April 2021. A cap will be introduced in order to reduce fraudulent claims and encourage genuine innovation.

What do the changes include?

From 1^st April 2021, the amount of payable R&D tax credit that a business can claim will be limited to £20,000 plus 300% of their total PAYE and National Insurance contributions for the same period.

The change will apply to accounting periods which span 1^st April 2021. If a business has an accounting period that straddles this time period then the pre-cap and post-cap rules will apply and the claims will need to be split accordingly.

Any claims made by a business for under £20,000 will not be affected.

What is an R&D Tax credit?

R&D tax credits are an initiative launched by HMRC to reward innovation and encourage business growth. They are a valuable source of cash for businesses to invest in developing a new product, process or service.

As a business, if you spend money on developing a new product, process or service (or enhance an existing one) you will be entitled to R&D tax relief. This can exist for any sector, just because you do not have a lab with people in white coats does not mean you do not have R&D.

The cash received from the R&D tax credit can be used to continue developing further R&D projects and growing the business. If you are making your first R&D claim, then you can usually claim relief for your last two completed accounting periods.

R&D tax credits are a complex process, to ensure you are claiming your full entitlement get in touch here.