R&D tax reliefs and the ability for SME’s to surrender R&D tax losses for a payable cash tax credit from HMRC can be a crucial funding line for certain businesses, including start-ups. However, for accounting periods beginning on or after 1 April 2021, the amount of cash tax credit that can be claimed in any one year is to be capped.
The cap is set at £20,000, plus three times the company’s ‘relevant expenditure on workers’, being:
Where the cap applies, only the part of the surrenderable loss within the cap can be surrendered for a payable credit. The balance of the loss is carried forward as a trading loss, to be used against taxable profits when they arise in the future.
A company’s claim of any size will be exempt from the cap provided the following conditions are met:
Less than 15% of the company’s overall qualifying R&D expenditure is spent on subcontractors or externally provided workers from a related party.
What actions should be taken?
Loss making SME’s should consider the potential impact of the cap, particularly if they have:
For assistance in reviewing how the cap could impact your SME, please contact Emma Reynolds, Simon Crookston or Stuart Weekes.