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Markel Tax

29 Mar 2019

Consultation on preventing R&D tax relief abuse

What changes are planned to Research and Development Tax Relief following the Spring Statement?

There were no new announcements relating to R&D tax relief contained within the Spring Statement that was presented to Parliament by Philip Hammond on Wednesday 13 March 2019.
However as mentioned in the 2018 budget, HMRC is to consult on restricting the amount of payable credit for those obtaining tax relief through the SME scheme:
 
To help prevent abuse of the payable credit, from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. This will ensure the relief is robust against identified abuse, including fraud, following the prevention by HMRC of fraudulent claims worth £300 million. The government will consult on this change.
 
On Wednesday 28 March 2019 this consultation document was published and focuses on how the measure will be applied, to minimise any impact on genuine businesses. A number of suggestions are made:
 
  • A potential threshold so that only payable tax credits above a certain value would be subject to the suggested restriction of three times the company’s total PAYE and NICs liability for that year. A figure of £10,000 has been used as an example, meaning a small company could claim a tax credit of up to £10,000 regardless of its PAYE and NIC contributions.
  • For groups of companies or those linked by a connected party this could be restricted to one capped claim per group, to stop numerous small claims being made. However in calculating the maximum amount of payable tax credit the company could include PAYE and NIC contributions for R&D staff made by other companies in the group (such as those subcontracted between companies). This could be added to the claimant company’s PAYE and NICs contributions. Therefore when multiplied by three it would increase the amount of credit accessible.
  • Losses which have not been able to be claimed as a tax credit due to the cap could be carried forward to future periods and later surrendered for a payable tax credit. This would depend on the company having subsequently made sufficient PAYE and NICs contributions and is intended to stimulate job creation. This could be time restricted with two years suggested as a time limit.
 
These measures are still subject to consultation and HMRC has said it is open to receiving representations for other proposals and welcomes further discussion around them. The closing date for responses is 24th May 2019.
 
Tagged R&D tax relief
Next article in series

28 Mar 2019

Preference Shares - when are they Ordinary Share Capital?

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