From 1 April 2020 the cash refund for payable R&D tax credits for small and medium size businesses (SMEs) will be limited based on the amount of payroll taxes paid by the company.
SMEs can claim upto £20,000 plus 300% of its total PAYE and NIC liability for the period.
However, a company is exempt from the cap if:
- its employees are creating, preparing to create or managing Intellectual Property (IP) and
- it does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons
CTA 2009 s1058D sets out the key definitions:
(a) any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right, or
(b) any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a);
“management activity”, in relation to intellectual property, means formulating plans and making decisions in relation to the development or exploitation of the intellectual property
Where an accounting period straddles 1 April 2021 the periods before and after this date will need to be separated or apportioned so that the new rules can be applied to R&D after this date.