Autumn Budget 2018 – Proposed change to R&D tax relief for SMEs

Loss-making SMEs that are undertaking qualifying R&D can surrender the loss to HMRC for a tax credit. The value of the repayment is restricted to the lower of 230% of the qualifying R&D expenditure or the total loss in the year.

It is only a proposal at the moment but the amount of payable R&D tax credit that a qualifying loss-making SME company can receive in any tax year would be restricted to three times the company’s total PAYE and NICs liability for that year.

The Budget statement confirms that the Government plans to consult on this change with a proposed start date of 1st April 2020.

Initial thoughts are that this proposal would catch small start-up companies who don’t have any employees, have directors on minimal salary but incur legitimate R&D costs through sub-contractors. Under the proposed changes these companies would no longer be able to claim the R&D tax credit and the valuable injection of cash from the relief would be lost.