Which scheme should I be claiming under?

There are two schemes, the large company scheme and the SME scheme.

The essential pre-requisite for claiming under the SME scheme is that you are an SME.

  • An SME is a company with fewer than 250 employees, and either annual turnover not exceeding €50M or a balance sheet total not exceeding €43M. But when calculating these figures companies must also add the figures of any other legal entities they are associated with, in the terms of the European definition of an SME.
  • As well as knowing the figures for the companies in which the claimant company has an interest it is necessary to know who owns the claimant company, and who controls it. If these persons (individual, other companies, institutions etc.) own or control other companies, or themselves have employees, turnover or balance sheets, then the rules will need to be carefully examined.
  • A copy of the definition is available at CIRD92800 and guidance on the definition is available at CIRD91400.

In the circumstances detailed in the following two paragraphs some, or all, of an SME's expenditure on R&D projects may not be eligible for relief under the SME scheme. In such cases, the expenditure may qualify for R&D relief under the large company scheme, even though you are a SME. R&D relief under the large company scheme is at a lower rate and no payable tax credit is available. There are also restrictions on the expenditure on subcontracted activities that can qualify for relief under the large company scheme.

If either of the following apply to a R&D project you are undertaking, then all expenditure on that project will be ineligible under the SME scheme, but may be eligible under the large company scheme:

  • the R&D project has been contracted to the company by someone else, or
  • notified State aid has been received in respect of the project.

If expenditure has been met, directly or indirectly, by someone else then that part of the expenditure on a project will be ineligible under the SME scheme, but may be eligible under the large company scheme. Thus you could have claims under both the SME and large company schemes for expenditure on the same project.

If the R&D project hasn’t been contracted to you by someone else, no notified State aid has been received and your R&D expenditure has not been met by someone else, then read no further on this page because any claim you make will be under the SME scheme. However if any of these might apply, you should read the information below and check which scheme to claim under.

Have the R&D activities been contracted to the company?

  • Claims under the SME scheme are only possible for expenditure on R&D projects which SMEs do on their own account, not for expenditure on R&D sub-contracted to them by someone else, see CIRD81470.
  • If a project has been contracted to you, you cannot claim for expenditure on that project under the SME scheme and should instead consider whether a claim can be made under the large company scheme. Who contracted the work to you is important and may determine whether you can make a claim. See CIRD89500.
  • You can still claim under the SME scheme for expenditure on any other projects that have not been contracted to you, provided the relevant conditions are met.

Has notified State aid been received in respect of the project?

  • There are limits set by the European Commission on the levels of public funding ('State aid') that States may provide to businesses, so competition across the European Community is not distorted.
  • R&D tax reliefs and payable tax credits for SMEs are a notified State aid, so they cannot be added on top of any other State aid for the same R&D project.
  • Examples of notified State aids are the DTI's Research Project grant and Development Project grant (including Exceptional Projects) under the Grant for R&D scheme administered by Regional Development Agencies in England. However DTI Micro Project grants are not notified State Aids (but see below). Other Government support (whether central or local) may be a notified State aid. If you have received a grant and are unsure whether it is a notified State aid the grantor should be able to tell you.
  • If a notified State aid has been received in respect of a project, expenditure on that entire project does not qualify for SME R&D tax reliefs or for payable R&D tax credits. You should instead consider whether you could make a claim under the large company scheme for expenditure on that project. You can still claim under the SME scheme for expenditure on any other projects that have not received notified State aid. See CIRD81670.

Has the expenditure been met, directly or indirectly, by someone else?

  • Expenditure on an R&D project which is met by someone else is not eligible for R&D tax relief under the SME scheme.
  • An example of this is where a DTI Micro Project grant pays for part of the project. A project is not regarded as funded by someone else if the company receives loans or share capital that it spends on R&D.
  • If expenditure on a project has been partly funded by someone else, a claim under the SME scheme may still be made in respect of the part that wasn't so funded. Expenditure disqualified from a claim under the SME scheme only because it is funded by someone else may qualify under the large company scheme. See CIRD81650.

Tool D - 'Points to check' lists all of these points, including where to find more detailed guidance in the CIRD manual.