What is the PAYE cap?

Introduced on 1^st 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