With Brexit around the corner there had been high expectations from UK business for the government to explore new ways for our country to look attractive and appealing post EU. Unfortunately, this did not quite happen. However, in-light of a recent significant fraud case identified by the HMRC, the government has re-introduced a NIC and PAYE cap for SMEs claiming a payable credit.
A new PAYE and NIC cap for the SME payable credit
Originally withdrawn in 2012, the government has now declared to re-establish the PAYE and NIC cap on SME payable credit, to advert abuse of the SME payable R&D tax credit. The duration of accounting commencing on or after 1 April 2020, will stand at 300% of the company’s total PAYE and NIC for that period. With this PAYE and NIC cap being reintroduced, this incentive will possibly be more likely to achieve its goals: If SMEs invest in appointing their own employees and produce STEM jobs. The benefit they receive will not be affected by the cap. Hopefully, this will stop the amount of exploitation and motivate the correct practice between businesses.
Research and development in business
Research and Development (R&D) Tax Credits are a tax incentive designed to encourage UK companies to invest in innovation. For small and medium enterprises (SMEs), R&D is a Corporation Tax (CT) tax relief that can reduce a company’s tax bill if liable for CT or can result in a payable tax credit.
For large companies, the name of the incentive is Research and Development Expenditure Credit (RDEC), which is an above the line credit and can allow them to claim payable cash credits or reduce their tax bill.
Research and Development for Tax Purposes
The definition of R&D for tax purposes is much more extensive than you might consider. The R&D tax relief schemes are designed to be suitable across any sector and exceptionally inclusive. It’s highly feasible that any challenges you face within your business projects could qualify as an eligible expenditure.
Government’s terms on R&D
As stated by the government on their https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief. R&D relief support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects. They also state that businesses may be able to claim Corporation Tax relief if your project meets their definition of R&D.
Requirements for R&D Tax Credit
The work that qualifies for R&D tax credit relief is required to be part of an existing project or a specified project you intend to pursue in order to make progress in science or technology. This does not include an advance within social science such as economics and pure maths.
To get the R&D relief you need to justify how a project:
- looked for an advance in science and technology
- Attempted to overcome uncertainty
- had to overcome the risks within the project
- couldn’t be easily worked out by a professional in the field
Your project may research or develop a new product, service, process or to improve on an existing one.
Innovation success story
Information sourced from Oxford University, an innovative company called Brainomix have developed software which helps doctors to evaluate the severity of strokes and quickly identify appropriate treatments. With the support and funding from the Innovative UK, the software analyses brain CT scans of stroke patients to determine whether they are likely to benefit from either clot-busting (thrombolytic) treatment or mechanical clot removal. This advanced technology allows hospitals to evaluate within minutes lifesaving treatment for their stroke patients.
Dr. Michalis Papadakis, CEO, and co-founder of Brainomix, explains: “In the hours after a stroke, it’s really difficult to tell how much damage has occurred on the brain CT scan. The signs are very subtle but are an important factor when selecting patients for life-saving treatment”
Clinical trials have shown that e-ASPECTS software is at least as good as expert physicians at evaluating CT scans of stroke patients. Thus, saving the life and quality of lives of stroke patients, time and money.
Is your business eligible for R&D Tax relief?
The guidelines and regulations controlling this niche area of tax credits are complex. So, before we get too involved in claim preparation it’s important to take a bit of time to understand the business, both technically and financially.