The amount of R&D tax relief you can claim depends, in part, on whether you are an SME or a large company.
It’s important to know how your business is classified before you get to figuring out how much you could be eligible to receive.
In this article we consider the two schemes in turn, and how to know whether you are an SME or a large company at any point in time.
SME R&D tax relief
To be considered an ‘SME’ for the purposes of claiming R&D relief, you must have:
- less than 500 employees; and,
- a turnover of under 100 million euros or a balance sheet total under 86 million euros.
Under the SME R&D tax relief scheme, eligible businesses can deduct an extra 130% of qualifying costs from yearly profit, as well as the normal 100% deduction, to make a total 230% deduction. Thus, the liability to Corporation Tax is significantly reduced.
A loss making company may, instead, claim tax credits worth up to 14.5% of the amount being surrendered.
R&D for large companies
If you do not meet the SME criteria, in that you exceed the values outlined, it is likely you’ll be classified as a large company.
For large companies, R&D relief is available under the Research and Development Expenditure Credit (RDEC) scheme.
The RDEC offers large companies the opportunity to claim a taxable credit worth up to 13% of their qualifying R&D expenditure incurred on or after 1 April 2020.
What if the size of my business changes?
It is possible, whether by organic growth or winding down, or as a result of planned structural changes, that the size of your business could change.
Your large company could find itself meeting the SME criteria, and vice versa. So, what does this mean for your R&D claim?
If the change in size is organic, the business will not be reclassified until the beginning of the third financial year following the change – i.e., there is an allowable adjustment period of two years.
If your business is bought by a larger entity and you are ‘linked’ the size of the combined entity will determine the scheme you can claim under.
If your business is sold by a larger entity, therefore becoming smaller, the two year adjustment period applies once more.
How can George Hay help?
Making the wrong call when it comes to determining which scheme to claim under can have unfavourable financial consequences for your business. Incorrect classification could lead to underclaiming or overclaiming, and potential penalties.
Accurate classification is key to speeding up the claims process more generally, and something we can assist you with.
If you are an SME or a large company, and you are working on a project that could be eligible for R&D relief, contact us today to discuss how we could support you.