R&D Tax Relief: Preventing Abuse of the SME Scheme

09 April 2019

Research and Development (“R&D”) tax relief is a government initiative to try and support businesses investing in innovative activities. The relief is an attempt to support the government’s aim of increasing UK expenditure on R&D to 2.4% of GDP by 2027.

A study conducted by HMRC found that for every £1 of tax forgone, between £1.53 and £2.35 of additional R&D is stimulated.

However, HMRC have highlighted that they have identified attempted abuses of the scheme that could have cost the taxpayer £300m. In an attempt to combat this, they have proposed measures whereby the amount of payable tax credit a company can claim through R&D tax relief will be capped from April 2020 to three times the total PAYE and NIC liabilities incurred by the company during the period.

The goal is to prevent companies claiming R&D tax credits when they have little employment or activity in the UK.

Notwithstanding, HMRC recognise this measure may have a detrimental impact on companies who legitimately have low PAYE and NICs relative to their R&D spend.  Consequently, HMRC have released a consultation to establish whether this cap could have unintended consequences.

What should companies impacted do?

Companies claiming R&D tax credits should therefore be aware of increased HMRC scrutiny into R&D claims, and should also consider whether they may be impacted by this proposed restriction.

How can AAB help?

  • Establish whether your company qualifies for R&D tax relief;
  • Work with you to prepare a claim in accordance with the legislation;
  • Assist you with measures to help maximise the value of your claim.

For more information please contact Jenna Mcdonald (jenna.mcdonald@aab.uk) or your usual AAB contact.

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