As of the 1st of April 2021, a change in R&D legislation will begin to take effect, this change in the SME R&D scheme will potentially put a limit on the cash claim size for certain affected SME’s The updated legislation has been put in place to reduce the abuse of the SME scheme through excessive payments to connected (and often overseas) companies.
What has Changed?
Claims will now be capped by £20,000 + 300% of the PAYE/NIC payments for the claimant company. Unless the company develops or creates intellectual property and does not subcontract more than 15% of total R&D expenditure to related parties. A related party, in this case, can be explained as where there is common control, for example, the same shareholders or being part of a group.
Who is affected:
Companies who predominantly outsource their R&D to subcontractors
Businesses with small total PAYE/NIC expenses compared to the company R&D claim
Small companies who claim less than £20,000 back from HMRC will not be affected by the change and nor should it affect companies who do most of their R&D internally. These changes have been put in place only to reduce abuse of the scheme and where possible create very little change for those that scheme is intended for. However, the changes in legislation might affect you despite this and we would recommend getting advice from a professional.
If the directors of the company are paid dividends instead of salaries despite being heavily involved in the R&D at a company it may be worth them taking a salary to both raise the cap, and as you would also now be able to claim for their time on a project.
If you typically outsource a lot of the R&D it might be worth considering hiring staff so that you can do the R&D internally and still benefit from the R&D scheme.
As creating IP can effectively cancel the cap you might be able to create a type of intellectual property right that would achieve this. Examples being a patent, trademark, registered design, copyright, design right, performer’s right or plant breeder’s right (or equivalent globally).
The change comes into effect for all expenditure from this April, meaning that it won’t be until April 2022 that it will affect a whole year of claims. But if your end of year is June it will affect the last quarter of your June 2021 claim.
This gives you the ability to plan ahead. At Inovasi we can help advise you on what is potentially the best solution for your company. Furthermore, as an innovation firm that has a speciality in IP, we can help you create the intellectual property rights to be uncapped.
Get in touch to see if we can help.