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In last month’s Budget, the Chancellor made the announcement that PAYE/NIC restrictions would be reintroduced to payable R&D tax credits for SMEs.

The changes – which are being positioned as an anti-fraud measure – will come into place on 1 April 2020, and will restrict the amount of payable tax credit a company can receive to three times its PAYE/NIC liability for that year.

It comes after HMRC announced that it has prevented £300m of fraudulent R&D claims.

Unintentional consequences?

Preventing fraud and the abuse of R&D tax credits is unquestionably a good thing. However, a potentially damaging consequence of these changes is that small start-ups who sub-contract work to agencies and have intentionally low payroll costs but high R&D expenditure will be hit as well.

It’s therefore reassuring to see that HMRC are giving time to consult on the changes to payable R&D tax credits, enabling the impact of unintentional consequences to be minimised.

Limited impact

It’s estimated that 95% of SMEs will remain unaffected by the changes. So for the most part companies shouldn’t be overly concerned about the changes.

The restrictions will only impact loss making companies that receive payable tax credits – those that receive a tax deduction will be unaffected.

It’s also positive to see that a 3 times limit of PAY/NIC has been put forward (instead of the one times limit previously implemented pre-2012).

If you think you might be affected by the changes announced in the Budget 2018, get in touch with our specialist R&D team at Haines Watts. You can read our full overview on all the changes announced in the Budget in our handy, PDF guide.

Want to know more? Call us on 0191 2699 960 or email

About the author

Jonathan Scott

Having joined Haines Watts as an apprentice, Jonathan quickly progressed through his AAT, ACA and CTA exams to become a Technical Tax Consultant. His success in specialist tax planning led to his promotion to Tax Partner in 2016, making him the youngest partner in the Haines Watts network to date. With a detailed understanding of tax planning, he provides tailored and proactive advice to clients to ensure they are structured in the most efficient way whether they are preparing for income tax returns; corporate re-organisations; company sales, mergers and acquisitions; inheritance tax or capital gains tax.

Jonathan has developed a particular specialism around research and development tax relief, advising clients how they can secure corporate tax credits through the development of innovative products and services.

Jonathan and his team have claimed back over £27m in R&D tax credits for innovative companies, as well as achieving a further £140m in total enhanced tax deduction. In this time, he’s worked with over 200 businesses, ranging from architects, digital agencies and engineers, to vets, manufacturers, and breweries.

Away from work, Jonathan – who was nominated for the Young Accountant of the Year in the 2015 North East Accountancy Awards – enjoys playing football and golf and walking his dog.

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