There are two R&D tax relief schemes – SME and RDEC.  SME R&D tax relief offers a much more generous benefit than RDEC but a company cannot choose which scheme to submit under, it all depends on the size of that company and the size of any partner or linked enterprises that company may have.

The thresholds which must be met in order to qualify for SME R&D tax relief are:

• Headcount of under 500 and either:
  • Turnover less than €100m or
  • Balance sheet total less than €86m

The claiming company’s data is easy enough to calculate but some or all of their partner/linked enterprises’ data must also be taken into account.

To understand whether a company has any partner or linked enterprises, we need to ask questions such as:

• Who owns the claiming company?
• If the claiming company is owned by another company, who owns that company? And who owns any companies above that?
• Do any of the companies in the ownership structure own any other companies? And do those companies own any other companies?
• If the claiming company is owned by individuals, do those individuals or anyone in their family own any other companies?
• Does the claiming company own any other companies? If so, do those companies own any other companies?

This can be a daunting and time-consuming task and is further complicated as the size of a company isn’t static and the company’s eligibility for the scheme isn’t solely based on its size in the accounting period in question, but its size in previous accounting periods also.

However complicated and time-consuming this task may be, it must be done otherwise the claiming company could end up with a benefit far more or less than they are entitled.

For example…..

Company A has:

• 250 staff
• turnover of €50million
• £100,000 staff costs relating to R&D
• £100,000 subcontractor costs relating to R&D
• one individual shareholder who doesn’t have shares in any other companies

Company B has:

• 250 staff
• turnover of €50million
• £100,000 staff costs relating to R&D
• £100,000 subcontractor costs relating to R&D
• 60% owned by a company with 300 staff

The only difference between the two companies is the ownership.  However:

• Company A is eligible under the SME scheme which means they can access a benefit up to £55,027.
• Company B is eligible under the RDEC scheme which means they can access a benefit up to £9,720.

That’s a big difference!

If the above wasn’t complicated enough, certain grants can impact on a company’s eligibility for either scheme but let’s leave that for another blog.

If you have any questions on this blog or anything R&D related, please contact us at [email protected].

Posted: 15 Feb 2022