How big is your business? It’s not as simple as you think
How your company’s size can impact your R&D tax claim
Bigger isn’t always better – at least not when it comes to claiming tax back to help fund science and technology research. Research and development tax credits are designed to help companies pursue important research by refunding some of their tax – and how much you can get back depends on the size of your company.
There are two schemes: the SME scheme for smaller companies and the RDEC scheme for larger companies. The SME scheme is much more generous: companies get on average a quarter of their project costs back, and sometimes up to a third, whereas the RDEC scheme will give you just under 10 per cent.
What counts as a small company?
To be eligible for the SME scheme, your company must have fewer than 500 employees, and either a turnover of less than €100 million or a balance sheet of less than €86 million. Otherwise, HMRC defines you as a large company and you will claim under the RDEC scheme.
You will also usually need to claim under the RDEC scheme if you are a small business which has received a grant or subsidy, or has been subcontracted to do research and development work by a large company. Employees on maternity or paternity leave and apprentices don’t count towards your head count.
Linked and partner companies
The staff, turnover and balance sheets of any linked companies should be included in your total. If your company holds more than 50 per cent of the voting rights in another company, or vice versa, then the two are linked.
If you have a partner company – one of you holds more than 25 per cent of the voting rights or capital in the other – you need to include a corresponding proportion of their staff, turnover and balance in your total (so if you own 40 per cent of another company, you should include 40 per cent of its staff, turnover and balance).
Companies which get bigger or smaller
If another company acquires control of your business, this may tip you into the large company category immediately.
However, if you hire more people so that you exceed the 500-employee threshold, or downsize so that you go under it, HMRC won’t reclassify you until the following financial year. The same applies if your company is sold and thereby moves into the SME category.
Research and development tax is a complicated affair – you can probably see that already and we’re still only deciding how many people your company employs! Fortunately, there are specialist research and development tax consultants about who can help you navigate the territory. Contact your local R&D tax solutions expert for advice today.