What is the PAYE cap?
Introduced on 1st April 2021, the PAYE cap is a regulation that is designed to protect R&D tax credits from abusive claims. It is a limit on the size of payable tax credit that companies can receive from the SME R&D tax relief scheme. It means businesses will only be able to claim tax credits worth up to 300% of their combined PAYE and NIC liability plus a £20,000 buffer.
Why has it been introduced?
The purpose of the cap is to protect the R&D scheme from abusive or fraudulent claims. Whilst this is a step in the right direction to manage fraudulent claims, the cap will reduce the R&D tax payments for thousands of UK businesses.
Who will be affected by the new legislation?
Loss-making companies will mainly be affected by the cap as it affects claims for R&D tax credits which are only available to companies that surrender a financial loss. R&D tax relief which reduces the amount of corporation tax owed by profitable companies is not subject to the cap.
- Companies with few or no staff members
- Businesses where Director’s pay themselves a small salary
- Firms with a high quantity of subcontractors
If you would like more information on how the PAYE cap could affect your claim, please get in touch with one of our experts. Our team are experts in securing the maximum financial reward for our clients in line with HMRC protocol. To ensure you are making the most of the R&D incentive, we always recommend talking to an expert like randd uk first.