Understanding the R&D Tax Relief Scheme for SMEs in 2021

tax relief scheme for smes

The Research and Development Tax Relief or R&D Tax was instituted for the progression of society and technology. This tax credit is available to small and medium enterprises (SMEs) with substantial proof that their business can improve society and advance technology. But with such a responsibility around this credit, SMEs must understand a few things to become eligible for it. 

 

R&D Tax Relief Scheme for SMEs

 

To be considered an SME, a company should have less than 500 employees, a total revenue of less than  €100 million, and a balance sheet of under €86 million. This rubric lets the government know which companies are qualified to claim the R&D tax of a payable credit if they are in a taxable-loss position.

 

How Companies Have Abused the R&D Tax Credit

 

This tax credit is the government’s way of showing support for innovation by helping companies with significant expenditures in R&D activities. However, it has come as no surprise that this tax credit has been abused by fraudulent organisations looking to benefit unfairly.

 

To prevent the abuse of this claim, Her Majesty’s Revenue and Customs (HMRC) created a restriction in 2018 that a company can receive payable credit, in any one year, thrice the company’s total PAYE and NICs liability.

 

But recent cases have shown that more action is needed. In recent news, three fraudulent claimants were jailed 21 years in prison for filing fraudulent R&D tax relief claims worth £29.5 million for a supposed IT project. Cases like this have then led to updates which we can now trace to last month’s announcement.

 

The New SME Credit Cap

 

Last month, the government decided to implement a cap by publishing draft legislation for the 2021 Finance Bill. It confirmed that it would start claim periods after April 2021. The proposed cap will be 3X the PAYE NIC liability of a company above the threshold of £20,000.

 

However, for companies with Accounting Periods (AP) shorter than a year, this threshold will be proportionate to their rendered number of months.

 

Calculating SME payable Credit

 

The current law states that the SME credit can be up to 230% of the qualifying R&D expenditure. This threshold was added to the cap for start-up businesses that may not have any employees yet. This threshold lets these companies submit a claim of £60,000 of qualifying R&D expenditure without exceeding the proposed cap.

 

Conclusion

 

The R&D tax relief was made so that people can contribute something meaningful to the world through proper research. It is meant to support small enterprises and help them through trying times. While some businesses need it, others can abuse it. If you are a business that believes you have something worth the while of an R&D tax credit, then there’s no reason not for you to invoke that right.

 

To handle your taxes, you need the help of clever tax accountants that will tailor their accounting service to your needs. Cheap Accountants in London is a part of a recognised accounting firm in the UK with a combined 40 years of experience in the field. Contact us today to work with us immediately.