Chancellor Philip Hammond announced a series of new policies to tackle tax evasion and avoidance during the Autumn Budget. This is a renewed focus on making sure that all tax liabilities are paid, in full, to the Treasury. Its aim is to collect £2bn in taxation during the following five years.
Are the current measures not working?
There have been several previous resolutions to the persistent problems of both tax avoidance and tax evasion. Some are generalised policy changes and others are specific to precise loopholes present in particular financial circumstances.
The government’s ‘Avoidance, evasion and unfair outcomes package: Budget 2018 brief’’ state that: “The tax gap, the difference between the tax that should be paid and the tax actually paid, has fallen from 7.3% in 2005/06 to 5.7% in 2016/17. This is the lowest tax gap in five years, and the second lowest ever.”
This can be interpreted as successful implementation of the current measures. But that does not mean that every problem is resolved.
What are the new measures?
Other issues require new policies to meet their precise requirements. One of these directly relates to previous abuse of the R&D Tax Credits scheme. The Chancellor announced several new measures, including:
- Ending VAT avoidance by “ending the practice of purchasing services through offshore branches”.
- If businesses go into insolvency, HMRC will be a “preferred creditor”. This means that all the tax collected will go straight to HMRC.
- “Stop our general research and development tax credit system being abused by re-introducing PAYE restrictions for the small and medium sized enterprises.”
What this means for your R&D tax credit claim
The restriction being placed on the R&D tax credit claim system only applies to those companies that are loss making. If your business is in profit, there are no changes to the rules.
The new rule states that loss making companies can only make an R&D tax credit claim that equates to three times their PAYE and NICs total. This applies to the year in which the R&D tax credit claim is being made. The new restriction starts in April 2020. It is hoped that this new measure will put an end to those defrauding the scheme.
There are some more details about the potential consequences of this new R&D tax credit cap in our previous blog. As always, we’re here to talk through the specific impact on your business, just give us a call on 0330 0539 112.