Posted: May 9, 2019
Originally announced as a minor change in Phillip Hammond’s October 2018 Budget an alteration to the rules regarding Research and Development Tax Relief could have major implications for some businesses.
At present current Research and Development Tax Relief regime allows loss making companies to ‘surrender’ losses arising from research and development activity for a tax credit. This tax credit has become particularly important for start up or early stage companies – where cash flow is often a key concern.
The proposed changes announced will place a cap on the level of this payable tax credit – this cap will be calculated based on three times the total PAYE and NI payments made by the company during the year. All other aspects of the R&D tax relief regime will remain unchanged.
For many companies this will make little difference to the payable tax credit received – however those likely to see the biggest impact are those where much of the development work is conducted by consultants or sub-contractors. This scenario is common in the biotechnology and also in some parts of the IT sector.
As matters stand these changes will take effect for accounting periods starting after 1 April 2020. There is however still some hope that these rules may be changed to reduce the impact on these businesses – HMRC have announced that a public consultation will take place on the detailed application of these new rules.
Should you have any queries on these changes please contact our Burgess Hodgson Partner and R&D specialist Tom Saltmer on firstname.lastname@example.org