Chris Stuttle
Senior Consultant
HMRC has recently refreshed its guidance under CIRD140000, which outlines how the PAYE and NIC cap applies to companies claiming R&D tax relief under the UK’s reformed schemes. These include the new RDEC (Research and Development Expenditure Credit) and the Enhanced R&D Intensive Support (ERIS) scheme.
If you’re claiming under either scheme, the PAYE cap limits the amount of payable credit your company can receive. The cap is calculated as £20,000 plus 300% of your relevant PAYE and National Insurance liabilities during the accounting period. If the accounting period is shorter than 12 months, the £20,000 element is reduced proportionately.
For companies using the RDEC scheme, anything claimed above the cap is not lost. It is carried forward into the next accounting period. Under the ERIS scheme, however, any amount claimed above the cap is invalid. This makes it especially important for intensive R&D claimants to track and calculate these figures correctly.
Some companies may qualify for an exemption from the cap. To meet the exemption, a company must be creating or managing intellectual property through its own employees and must spend no more than 15% of its qualifying R&D costs on subcontractors or externally provided workers from connected parties.
As for the recent update, there have been no changes to the rules themselves. The PAYE cap calculations, definitions, and exemptions remain exactly as before. What HMRC has done is reformat and streamline the guidance. The new version removes step-by-step headings, simplifies some of the language, and improves the overall structure to make it easier to read.
The PAYE cap restricts the amount of payable R&D tax credit a company can claim in an accounting period. It is calculated as:
£20,000 + 300% of the company’s relevant PAYE and NIC liabilities (under CTA09/S1112B)
To determine PAYE and NIC liabilities, HMRC requires companies to consider:
A company is exempt from the cap if:
Qualifying IP includes patents, copyrights, trade secrets, and know-how arising from R&D.
If you are already familiar with the PAYE cap rules, you will not need to make any changes to how you apply them. However, it is still a good idea to review the revised version to ensure your interpretation is consistent with HMRC’s latest presentation, especially if you are preparing documentation or filing claims under the new R&D schemes. Clear documentation and accurate calculations remain essential for compliance and audit.
If you’re unsure how the PAYE cap might affect your R&D tax relief claim, especially under the new RDEC or ERIS schemes, it can really help to get expert guidance. That’s where TBAT Innovation comes in. We’re experienced in navigating the complexities of the PAYE cap, whether it’s working out the right calculations, checking if you qualify for an exemption, or making sure you’re not at risk of invalidating a claim under ERIS.
With more scrutiny being applied to R&D claims, having clear records and a solid understanding of how the cap works is more important than ever. TBAT can support you through that process, helping you stay compliant while getting the most out of your claim. Get in touch with our expert team today
The full CIRD140000 PAYE cap guidance is available in the HMRC manual: CIRD140000 – R&D Tax Reliefs: reformed reliefs: PAYE cap – HMRC internal manual – GOV.UK
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