The R&D PAYE and NIC Cap
Written and reviewed by the R&D Tax Accountants editorial team. Last reviewed 8 August 2026.
The payable element of an R&D claim is capped. A company cannot receive more in the period than £20,000 plus 300% of its relevant PAYE and National Insurance contributions liabilities for that period, unless it is exempt from the cap.
The cap exists to link cash payments to real employment in the UK. Its practical effect falls on companies whose R&D is delivered largely by contractors or by people who are not on their payroll.
The Cap Formula
The amount is £20,000 plus 300% of the company's relevant PAYE and National Insurance contributions liabilities for the period. The £20,000 is a flat allowance, so a company with no payroll at all still has a small amount of headroom.
The cap applies to the payable credit under the merged R&D expenditure credit and under Enhanced R&D Intensive Support, and it applied under the old SME scheme as well. It is a limit on what can be received in cash in the period, not a reduction in the qualifying expenditure itself.
Which Claims the Cap Restricts
The companies that hit it share a shape: heavy R&D spending, a small payroll, and most of the technical work delivered through externally provided workers or subcontractors. A founder-led company paying itself little, using an outsourced development team, can generate a large qualifying figure against a very small PAYE base.
A worked example makes the size of it clear. A company with £30,000 of relevant PAYE and NIC liabilities has a cap of £110,000, being £20,000 plus three times £30,000. If its claim would otherwise produce a payable credit above that, the excess cannot be paid out in the period. For a loss-making company under Enhanced R&D Intensive Support planning around expected cash, that is the number that matters rather than the headline rate.
Exemption From the Cap
HMRC's guidance confirms that an exemption from the cap exists but does not set out the qualifying conditions on the main scheme pages. We are not going to state conditions we cannot source, so this page says only that the exemption exists and that it needs checking against the legislation and the Corporate Intangibles Research and Development Manual for any company that looks capped.
That is worth doing rather than accepting the cap at face value, because the difference between capped and exempt can be the whole payable amount. If your claim is close to the limit, it is one of the first things to establish. HMRC sets out the formula in its merged scheme and ERIS guidance, and the funding alternatives for companies constrained by it run through Innovate UK.