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HMRC internal manual

Corporate Intangibles Research and Development Manual

R&D tax relief: SME scheme: payable tax credit - restriction of the credit


If a company claims a payable R&D tax credit the Revenue pays it an amount in respect of the credit unless any of the following apply:

  • The company has other outstanding debts to HMRC. S130 FA2008 gives HMRC the power to set off amounts that are due to be repaid to a company against debts owed by that company, including contract settlements. See in this connection DMBM700010. This includes CT, PAYE and VAT debt.
  • There is an enquiry into the company’s return for the accounting period for which the R&D tax relief is claimed. In this case, payment may be withheld until the enquiry is completed. HMRC may make provisional payments before the enquiry is completed.

Note in particular that you do not need to seek authority from companies before set off takes place but you do need to tell the company of the set off in writing.

Any surplus R&D tax credit after clearing any other HMRC debt can be paid.

PAYE and NIC liability

The total of the company’s PAYE and NIC liabilities for a payment period is the total of:

  • The gross amount of income tax that the company is required to account to HMRC for that period. Ignore any deductions the company is authorised to make for working tax credit and child tax credit.
  • The gross Class 1 NICs paid for that payment period. Ignore any deductions the company is authorised to make for statutory sick pay, statutory maternity pay, working tax credit or child tax credit.
  • A payment period is a period that ends on the 5th of the month and for which the company is liable to account for income tax and NIC to HMRC

The PAYE/NIC restriction has however been removed for accounting periods ending on or after 1 April 2012.