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Cash in your R&D tax losses before it is too late

Caroline Hunt, Director, Corporate tax
18/01/2019
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The clock is ticking and some loss-making SMEs may not be able to cash in their R&D tax credits from next year.

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.

Budget proposals

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.

What should you do now?

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.


Any companies can qualify if you are:

Product   Coins     Cog
Developing new or improved products or processes.   Investing in technology, including the development of new or improved software when used:    Investing in software to make your business run more efficiently.
  • Manufacturing: both products and processes.
  • Food and drink: products and processes.
  • Audio visual and sensory related technologies.
  • Property, construction and engineering.
 
  • for sale or licencing
  • as part of a product, process or device.

Examples:

  • Development of apps, tools and platforms.
  • Data analytics e.g. in the medical and financial sensory etc.
  • Data security/E-learning.
 

Examples:

  • development of a new improved client relationship management system (CRM)
  • development of a new or improved document management system (DMS).
  • improved stock control system
  • Improved warehousing system.

Contact us

If you would like to know more about how these proposals could affect your business, and what you can do to mitigate the impact of these, please contact either Caroline Hunt or your usual Crowe contact.
Caroline Hunt
Caroline Hunt
Director, Corporate Tax
London