Business owners in the construction sector are being urged to take action now to protect their SME payable research and development (R&D) tax credit. The call to action, from R&D tax credit consultancy ForrestBrown, is in response to the Chancellor’s move to prevent abuse of SME payable R&D tax credits in the Budget 2018.
This will see the Government reintroduce the PAYE and NIC cap on the SME payable R&D tax credit that was abolished in 2012. This time, from 1 April 2020, the limit will be set at 300% of the company’s total PAYE and NIC for the period.
Jenny Tragner, director at ForrestBrown and a member of HMRC’s R&D Consultative Committee, is encouraging SMEs in the construction industry to think about how best to navigate this change in legislation to maximise the cash benefit they receive from R&D tax incentives.
Jenny comments: “For the vast majority of businesses, R&D tax credits are a valuable source of funding that helps them to grow and prosper. Indeed, we welcome the Chancellor’s move to prevent the abuse of the SME payable R&D tax credit. We have seen first-hand the fantastic benefits that claiming R&D tax credits can deliver and so it is important this relief reaches genuinely innovative UK businesses.
“However, this move means that unintentionally, early-stage innovative start-ups and companies that regularly use a contract workforce for projects could be penalised if they can’t afford to take on permanent staff. Whilst the Government thinks that this change in legislation should only impact 5% of claimants, we know that sectors like construction will feel an impact. This is particularly worrying at a time when the sector is already suffering from Brexit with project delays and cancellation, cost inflation and financing restrictions. Many businesses in this industry that regularly dial up and down different skillsets depending on their project will be heavily weighted towards third party costs rather than salaried staff. They therefore need to think about how best to prepare for this change as a business.”
Offering advice to construction businesses, Jenny adds: “The Chancellor has reintroduced the PAYE and NIC cap to drive the right behaviours amongst businesses and ensure the incentive achieve its aims: to increase private sector investment in innovation. Given that the legislation won’t kick in until after 1 April 2020, there is time to plan for this change, but it may require action now from businesses in the construction sector.
“For example, whilst the new legislation won’t take affect until after 1 April 2020, we would urge companies to take time now to reflect on how best to protect their payable R&D tax credit.
“Many small business owners currently take their remuneration as a dividend due to it being more tax efficient than a salary. After this change, these entrepreneurs may instead find taking a salary more attractive if it protects their business’ payable R&D tax credit. As this is a significant change, we recommend seeking the advice of an expert like ForrestBrown.
“Finally, if SMEs invest in hiring their own staff, and creating STEM jobs, the cap will not impact the cash they can receive.”
ForrestBrown will be consulting on this issue with the Government, and will continue to help businesses to benefit from R&D tax credits as valuable growth fuel for their business.