Three new measures you need to be aware of if you’re claiming R&D tax relief
Tax Reliefs (including R&D)
With crisis often comes change. So it’s no surprise that over the course of the pandemic we’ve seen business owners adopt some really innovative strategies to adapt, pivot and thrive during these challenging times.
For many companies that are taking risks and overcoming technological uncertainties, Research and Development Tax Relief (R&D) can provide a significant cash injection to help boost cash flow and bring ambitious ideas to life.
However, if you are claiming tax relief for R&D – or you’re planning to – there are a number of new measures which have recently came into play, which could have a big impact on your claim.
1. The new cap on SME R&D claims
The new cap on SME claims came into effect on 1 April this year in order to tackle the rising cases of R&D fraud which have been accumulating over the past few years.
This means that for accounting periods starting on or after 1 April 2021 the amount of payable R&D tax credit that an SME can receive will be capped at £20,000 plus 300% of their total PAYE and NIC expenditure liability for the period.
This will ultimately help to safeguard the incentive and ensure that businesses who rightfully qualify will still be able to benefit from the relief in the future.
Whilst this new measure won’t affect the majority of claimants, it is important to be aware of. It’s also worth keeping in mind that the cap could be mitigated if tax losses can be carried back to earlier periods, or if an element of losses are carried forward against future profits.
2. Loss carry back rules
Trading losses that have been made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 can now be carried back up to three years, rather than one, with losses being carried back against later years first.
R&D claims create additional losses by offering an enhanced deduction for costs incurred on innovation. Therefore, this measure could be a real buoyancy aid for companies who were making a profit before the pandemic, and have since faced financial difficulty. By increasing the amount that they get back in tax relief, this measure could really help to improve cash flow for a lot of businesses.
3. The super deduction
One of the biggest talking points of this year’s Spring Budget was the Chancellor’s capital allowance super deduction, which will run from 1 April 2021 to 31 March 2023.
If your company invests in qualifying assets - whether that is IT and office equipment, or security systems and manufacturing equipment - you could qualify for the 130% super deduction on plant and machinery costs or 50% deduction on certain integral features and long life assets.
Previously, companies could only claim 100% of costs incurred on the first £1m of spend. Beyond this limit, tax relief could only be obtained at rates of 18% (on plant and machinery) or 6% (on integral features/ long life assets).
When combining this with an R&D claim, the super deduction could result in a huge reduction in your company’s taxable profits. For loss making companies, it could also increase the company’s losses, meaning that you could also benefit from the loss carry back rules too.
Helping you navigate the new measures
Navigating your way through the technicalities of these new measures can add an extra layer of pressure and can sometimes seem like a daunting task.
Whether it’s ensuring you’re on the right side of the new SME cap, making sure you’re maximising the loss carry back rules and super deduction, or you’re just looking for more clarity on the new measures, our Tax Incentives and Reliefs team are on hand to support you.