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Anti-abuse measures for SMEs R&D tax relief and R&D reform with more on the horizon.

From 1 April 2021 SMEs applying for R&D tax credits will be eligible for a maximum £20,000 in repayments per year plus three times the company’s total PAYE and NICs liability.

Draft legislation published last year included an exemption from the cap where a company is creating, preparing to create, or managing intellectual property and where less than 15% of the R&D expenditure is with other connected companies.

It has been agreed that where a company has an accounting period which straddles 1 April 2021, the measure does not apply to the part of the period from 1 April, but instead, only affects the next full period starting after that date. This will give companies confidence that they will not need to apply the new rules to a current AP.

The definition of intellectual property whose management can support the company being exempt from the cap will be widened so know-how and trade secrets are included. This will cover cases where companies are not able, or do not wish, to protect the results of their R&D.

The government has launched a review of R&D tax reliefs to ensure the regime continues to be well targeted and effective in incentivising innovation in the rapidly changing environment. As part of the review there are plans to consider whether additional expenditure including data and cloud computing should be brought into the scope of relief.

The review is supported by a consultation running from 3 March to 2 June 2021.

This article has been shared from ACCA In Practice, to whom copyright belongs.  Whitefield Tax are an ACCA Member Firm