Consultation outcome

Preventing abuse of the R&D tax relief for SMEs: second consultation

This consultation has concluded

Detail of outcome

After considering views put forward in the 2020 consultation, the government is now confirming that the design of the PAYE cap will include the following features to minimise the impact on genuine businesses:

  • a company making a small claim for payable credit below £20,000 will not be affected by the cap
  • a company will be able to include related party PAYE and NIC liabilities attributable to the R&D project when calculating the cap and these will be subject to the 300% multiplier
  • a company’s claim will be uncapped, if it meets two tests. These tests require that a company’s employees are creating, preparing to create or actively managing intellectual property (IP) and that its expenditure on work subcontracted to, or EPWs provided by, a related party is less than 15% of its overall R&D expenditure
  • draft legislation, an explanatory note, and a tax information and impact note (TIIN) has also been published

Original consultation


Budget 2020 announced the R&D PAYE cap, proposed in 2018, would be delayed by a year to allow time to consult on policy changes, which better focus the measure. The government has considered all responses to the second consultation and has published summary of the responses.

This consultation ran from

Consultation description

Research and Development (R&D) tax reliefs, including the small or medium sized enterprise (SME) scheme, support businesses to invest and are a core part of the government’s support for innovation. To prevent abuse of the SME scheme, Budget 2018 announced that the amount of payable tax credit a qualifying loss-making business can receive would be capped at three times the company’s total PAYE and NICs liability for that year.

The government consulted on the application of the cap between 28 March and 24 May 2019, to ensure eligible businesses are able to access the relief. The government has published a response to the 2019 consultation here.

Budget 2020 announced the introduction of the cap would be delayed until 1 April 2021, in order to consult on changes to the design of the measure. The government welcomes responses and input from businesses and their representatives currently claiming or planning to claim the payable tax credit. The government would be particularly interested to hear from businesses who believe they would have been affected by the PAYE cap, as announced at Budget 2018, and who took part in the 2019 consultation.


Published 19 March 2020
Last updated 12 November 2020 + show all updates
  1. Updated with consultation outcome.

  2. Updated consultation closing date.

  3. Updated with new consultation closing deadline.

  4. First published.