Currently it is possible to claim back up to 33.35% of R&D spend from HMRC (i.e. spend £100 on R&D and receive £33.35 back in cash) thereby providing a valuable source of funding to many companies. This is borne out by HMRC’s latest R&D statistics (issued September 2018) which reveals that last year 15,000 businesses ‘cashed in’ their R&D tax benefits, receiving in total £1,165 million cash from HMRC.
Last autumn’s Budget included proposals to cap this generous relief for accounting periods beginning on or after 1 April 2020. The cash received back from HMRC will be limited to three times the company’s total PAYE and National Insurance contribution payment for the period.
The good news is that these proposals are subject to consultation and that given the general uncertainty around the post-Brexit economic landscape these may either be radically changed or even rejected.
The bad news is that if the Budget proposals do become law as they stand they appear to be disadvantageous to many small and start-up companies that cannot afford a large salary bill. The proposals would also affect owner managed business that choose to pay dividends in preference to salaries.
The impact of the proposals, if they become law, may cause some businesses to re-evaluate how their R&D team is rewarded and whether this needs to be restructured.