Government confirms R&D tax credit cap exemption to protect genuine biotech companies

Draft legislation to implement the SME R&D tax credit PAYE cap published yesterday (12 November) confirms that the Government intends to implement a targeted exemption to protect genuine companies, as proposed by the BIA.

The government consulted extensively (in 2019 and March 2020) and is now confirming that the design of the PAYE cap will include the following features to minimise the impact on genuine businesses:

• A company making a small claim for payable credit below £20,000 will not be affected by the cap
• A company will be able to include related party PAYE and NIC liabilities attributable to the R&D project when calculating the cap and these will be subject to the 300% multiplier
• A company’s claim, of any size, will be uncapped if it meets two tests:
  1. The company’s employees are creating, preparing to create or actively managing intellectual property (IP); and
  2. that its expenditure on work subcontracted to, or externally provided workers provided by, a related party is less than 15% of its overall R&D expenditure. 
      

The changes will be introduced for accounting period beginning on or after April 1, 2021. For a December year end this means the cap rules will be in force for 2022 onwards. 

Dr Martin Turner, Head of Policy and Public Affairs at the BIA, said: “This exemption means most UK biotech SMEs will be unaffected by the cap on R&D tax credit claims, which is intended to prevent abuse of the scheme and not penalise genuine companies. This is a great outcome because the original proposal in the 2018 Budget would have severely and unfairly impacted over half of SMEs in our sector.

“We would like to thank HM Treasury and HMRC for listening to our concerns and working with us to design the exemption to protect genuine companies. There are a few issues we still need to confirm but overall this is a great outcome for our members. We would also like to thank our Finance and Tax Advisory Committee for their work on this vital issue on behalf of our membership.”    

Notes to Editors

1.  Further information about the BIA’s campaign to amend the proposals can be found here.
2.  The draft legislation implementing this measure can be found here.
3.  The March consultation documents can be found here.
4.  The BIA’s submission to the March consultation can be found here and the 2019 consultation here.