What is an SME when talking about R&D tax credits?
To be classed as an SME for R&D tax credits, your business must have fewer than 500 staff, and either:
A turnover of no more than €100 million; or
Gross assets of no more than €86 million.
If your staff headcount is lower than 500, but you exceed both the turnover and gross asset thresholds, you will be classed as a large company for R&D tax credit purposes.
Why are the figures in Euros?
It’s because the SME definition was written by the European Commission.
It’s also important to note that R&D tax credits are not reliant on EU funding in any way.
What R&D tax credit scheme do I use?
It is important to keep the definition of what counts as an SME for the purposes of R&D tax credits in mind. This is because it is the main factor that determines which scheme you use to make your claim:
The SME R&D tax credit scheme is worth up to 33p for every pound spent on qualifying expenditure.
RDEC, the research and development expenditure credit, is worth 11p for every pound spent on qualifying expenditure.
To determine your company’s status for R&D tax credits, you need to examine your staff headcount plus turnover and balance sheet gross assets.
What is meant by ‘500 staff?’
To calculate your staff levels, you need to consider employees on your payroll, including the directors. If you have part-time staff or seasonal workers, you can convert their time into annual work units.
Subcontractors are not counted; however, you do need to include secondees and any deemed employees if relevant.
How do you establish the turnover and balance sheet thresholds?
To check your turnover meets the SME thresholds, you would typically use the annual turnover figure from your published accounts. VAT and indirect taxes can be excluded. If your accounts are for a period of shorter or longer than 12 months, you must annualise the figures.
For the balance sheet total, you should look at the gross assets in your published annual accounts.
HMRC do have the flexibility to consider your circumstances if the accounts yield an unfair result.
To unlock a higher level of rebate and to ensure you don’t get into trouble for making a claim, you do need a specialist to look at this for you.
To maximise your R&D claim, please contact us.