The R&D Tax Credit scheme is changing
New legislation in the form of Finance Bill 2021 has just been published. This follows on the back of two HMRC consultations, both of which MMP responded to. The goal of this change is to stop the recent increase in unscrupulous companies attempting to make fraudulent R&D Tax Credit claims.
This change will impact claims made in accounting periods beginning on or after 1 April 2021.
Will my business be affected?
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What is changing?
The payable R&D Tax credit is now being capped to three times the total PAYE and NIC liability of the company for the year plus £20,000. If you have any connected parties, you will be able to include their PAYE and NIC liabilities attributable to the R&D project as well.
If your R&D tax credit claim is less than £20,000 than you will not be impacted by the cap.
When the cap applies
A company's R&D tax credit claim will not be impacted if it meets two tests:
- Active IP creation or management
- Expenditure on agency workers provided by a related party is less than 15% of the overall R&D expenditure
This cap will mainly apply to companies with:
- significant outsourcing of eligible R&D
- few salaried R&D employees
- claims primarily arising from non-salary costs such as consumables, software or subcontracting
What do they mean by the IP creation or management?
The definition of Intellectual Property (IP) is quite limited, it means patent, trade mark, registered design, copyright, design right, amongst several others.
Although, updated guidance has not yet been published, by looking at the patent box scheme, we can have a good indication of what HMRC will be looking for to meet this requirement.
Companies will most likely need to show how they are making plans or decisions in regards to the development or exploitation of the IP rights. Such as:
- Planning or decision-making activities related to developing and exploiting the IP
- Deciding regarding granting licences, expanding research activities or product analysis and development from their IP
- Decisions regarding maintaining and extending protection in other jurisdictions
At MMP we've been specialising in helping companies to maximise their innovation through IP Planning, Patent Box and the R&D Tax Relief for decades.