HMRC Guidelines with regard to Research
This is the latest October 2016 update which may apply to companies that receive more than 500,000 Euros per annum in State Aid.
Small and Medium sized Enterprises, (SMEs), are defined as companies that have LESS THAN 500 employees AND EITHER have:
- An Annual Turnover of under 100 Million Euros OR
- A Balance Sheet of under 86 Million Euros.
A company is not considered to be an SME if it is part of a larger entity and that subsequent entity then fails to meet the above criteria. You will need to consider; any and all, linked, partnerships or shareholding companies with at least a 25% share interest in your company AND ALSO any subsidiary company in which YOUR company holds a 25% share.
The HMRC definition of an SME in regard to Corporation Tax, PAYE taxation and the relationship to other Government Agencies is NOT the same definition as that used to identify an SME for R&D Tax Relief.
(This is a critical point where Meer & Co is able to provide your organisation with specialist advice).
Points that you should be aware of are that R&D Tax Relief under the SME Scheme are not applicable to sub-contractors, (whereby you have been given sub-contractual obligations to complete a job on behalf of another). However, you may be able to claim under a separate option which is referred to as the Large Company Scheme. There may also be instances wherein you MAY NOT be able to claim wholly under the SME Scheme even if your company is defined as one but could however claim R&D Tax Relief under the Large Company Scheme for one project and under the SME Scheme for another.
Your company needs to also be an actual going concern and not in administration or liquidation for there to be any eligibility for R&D Tax Relief. If you have gone bankrupt since making a claim, that claim in essence becomes null and void.
Since R&D Tax Relief for SMEs is considered as State Aid, the amount of Grant or State Subsidy that you receive in relation to the R&D project as R&D expenditure is reduced by the amount of subsidy or grant received. There maybe instances when a grant will reduce the amount of R&D Tax Relief you could receive and also instances whereby a subsidy could affect the amount of an R&D Claim.
Meer & Co can assist and guide you through these complexities, so that you are then able to make the best possible decisions for your business.
Rate of Tax Relief
This scheme has higher rates of relief effectively from the 1st of April, 2015. It allows 230% Tax Relief on R&D expenses, which is the same as saying that for £100 spent, your company could reduce Corporation Tax by another £130 on top of the £100 spent.
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Article written by Haroon Rafique (Principal, Meer & Co Chartered Accountants and Tax Consultants)
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