HMRC consults on payable credit for SME scheme
In the 2018 budget, it was announced that HMRC would be consulting to restrict the amount of payable credit for those obtaining tax relief through the SME scheme. Ian Donaldson from Markel Tax explains.
Background
To help prevent abuse of the payable credit, from 1 April 2020, the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.
This will ensure the relief is robust against identified abuse, including fraud, following the prevention by HMRC of fraudulent claims worth £300 million. The government will consult on this change.
Consultation suggestions
On 28 March 2019 the consultation document was published with a number of suggestions made:
- A potential threshold so that only payable tax credits above a certain value would be subject to the suggested restriction of three times the company’s total PAYE and NICs liability for that year. £10,000 has been used as an example, meaning a small company could claim a tax credit of up to £10,000 regardless of its PAYE and NIC contributions.
- For groups or companies linked by a connected party, this could be restricted to one capped claim per group, to stop numerous small claims being made. However, in calculating the maximum amount of payable tax credit, the company could include PAYE and NIC contributions for R&D staff made by other group companies (e.g. those subcontracted between companies). This could be added to the claimant company’s PAYE and NICs contributions. Therefore when multiplied by three it would increase the amount of credit accessible.
- Losses which have not been able to be claimed as a tax credit due to the cap could be carried forward to future periods and later surrendered for a payable tax credit. This would depend on the company having subsequently made sufficient PAYE and NICs contributions and is intended to stimulate job creation. This could be time restricted with two years suggested as a time limit.
HMRC welcomes discussion
HMRC has said it is open to receiving representations for other proposals and welcomes further discussion around them. The closing date for responses is 24 May 2019.
About Markel Tax
Markel Tax is the UK’s largest independent tax consultancy and adviser to the accountancy profession. With the reputation of delivering the highest service standards within the fee protection insurance market, Markel Tax is the trusted partner for over 2,500 UK accountancy practices.
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The views expressed are those of the author and not necessarily those of ICAS.