The government consultation period on the new R&D cap for loss making companies ends at 11.59pm on the 24th May. If you have concerns about how the cap will affect your business, this is your chance to influence HMRC’s decisions about the forthcoming process. The policy itself will not be implemented until April 2020.

What is the R&D tax relief cap?

As you will have read in our previous article, the new cap on R&D tax relief for loss making companies was part of the 2018 Budget.

Briefly, this is HMRC’s way of stopping abuse of the system that has led to some companies making fraudulent claims. From April 2020, if a company is making a loss, it can only claim a R&D tax relief amount that is equivalent to three times the combined total of their NICs and PAYE contributions.

As they explain in the introduction to their ‘Preventing abuse of the R&D tax relief for SMEs’ consultation document:

“1.5 However, the government understands that some genuine companies may have low PAYE and NICs liability relative to R&D spend and therefore could be affected by this measure, despite the cap being set at three times their PAYE and NICs liability. As genuine companies are not the intended target of the cap, the government is determined to keep any impact on them to a minimum and committed to consult on the cap before it is implemented.

1.6 This consultation is about how the cap will be applied, so as to minimise any impact on genuine businesses. The government welcomes responses and input from businesses and their representatives currently claiming or planning to claim the payable tax credit.”

Why should I take part in the consultation?

Although the policy is already passed, the government is still putting together how it is going to work in practice. They do not want to exclude real claims from legitimate companies that just happen to have smaller numbers of employees. The intricacies of defining a process all need to be considered now, so that a clear definition is drawn up by the April 2020 implementation date.

If you are wise enough to realise the value of R&D tax relief, then you will be interested in how this is going to pan out. If your company’s business benefits from R&D tax relief investment in future innovative projects, then you will already be thinking about your 2020-2021 budget. Will the cap affect you? What details concern you the most? Do you have any alternative ideas that HMRC could use to combat fraudulent R&D tax relief claims? Now is the time to share your thoughts with the people that will ultimately make these decisions.

What are the R&D tax relief cap consultation questions?

There are only eight consultation questions, that really get into the nitty gritty of the possible process, taken directly from the government’s document.

Consultation Questions:

  1. “If the cap is only applied for payable tax credit claims above a defined “threshold“, at what level would this be useful at reducing any potential administrative burdens on genuine companies?
  2. If a group was only able to submit one payable tax credit claim at or below a certain threshold per year, how would this fit with the way that claims are currently made? How common is it for more than one company in a group or common control entity to make a claim for the payable R&D tax credit?
  3. If an element of the PAYE and NICs liabilities of another group or connected company were included as a part of the cap (where R&D has been subcontracted to it or EPWs provided by it), to what extent would this benefit companies? How much additional complexity would this add to claiming the payable tax credit?
  4. Would it be practical for claimant companies to obtain the PAYE and NICs information from other group or connected companies? Are there any limitations to their doing so? Would the other company be willing to provide this information?
  5. How beneficial would surrendering carried forward losses, to claim a future payable tax credit when sufficient PAYE and NICs liability has been generated, be to a company affected by the cap? Would a time limit of 2 years be appropriate? How straightforward would it be to keep track of the origin year of the losses?
  6. Would carrying forward losses make companies consider taking on more staff in the future – to unlock some (or all) of the rest of their payable tax credit?
  7. The government is interested in the characteristics of companies that could be affected by the cap. For example, if you are or represent a company likely to be affected by the cap, how large is the company in terms of employees? How many staff are primarily engaged in R&D activity? How old is the company? What sector does it operate in?
  8. What else could the government consider, regarding how the cap is applied to preventing abuse, to ensure genuine companies can continue access the payable tax credit? Are there any alternative measures that could prevent abuse of the payable tax credit.”

How to take part in the consultation process?

All you have to do is send your answers to these questions to HMRC, by 24th May, in one of two ways:

  • Email: rdtaxrelief@hmrc.gov.uk
  • Postal address:Business, Assets and International,CT Innovation & Growth team, HM Revenue and Customs, 100 Parliament Street, Westminster, London, SW1A 2BQ

HMRC provide privacy and use of information clauses within their consultation document.

As soon as they publish their definitive guide to the implementation of this change to R&D tax relief, you’ll read about it here.

 

Jamie Smith