Which R&D scheme am I entitled to claim under?
Hmmm… two schemes, one far more generous than the other. There’s a catch, right?

Not so much a ‘catch. just a few questions that need answering. Firstly, was headcount throughout each claim period above 500? If so, you’ll qualify under RDEC legislation but below this limit, you’ll usually qualify under the more-generous SME scheme.

Usually eh? Sounds like there’s some ‘if’s and but’s’ coming…..

Could be. Was your turnover below €100m and your Gross Assets below €86m? You see, even IF your headcount meets the 500 ‘limit’ BUT both Turnover and Gross Assets exceed their respective limits, you’d still only be eligible to claim under the RDEC rules.

But our headcount changes all the time; up one week and down the next. How do I know who to count and who to ignore?

It’s the same for many claimants, so we only look at the average numbers employed during each period. You should include everybody on your payroll, including directors, but only count starters, leavers and part-time staff as an
apportionment of the time they worked; so if someone either started or left the business half way through the year or worked ‘mornings-only’, theywould count as 0.5 of a head. Make sense?

I think so…….

Oh, I nearly forget. Apprentices, vocational students and anyone on parental leave shouldn’t be included at all.

OK, so how would we verify our Turnover and Gross Asset figures? And why do it in Euros?

These will be taken from your Financial Statements for the claim period in question. The Euro thing is simply because the scheme was devised by the European Commission, so we have to convert your figures into Euros at the
prevailing rate.

What if I’m part of a larger group?

I’m glad you asked, as this can affect the legislation you are eligible for. If you’re a Link-connected company, where you’re controlled by another (or both are controlled by the same), the Headcount, Turnover and Gross Asset metrics of all connected parties must be aggregated. If you’re a Partner-connected company, where one holds 25 – 50% of the other, the metrics of each party are apportioned at the respective %’s, and these are then aggregated.

And what happens if we breach these restrictions?

The size of a business may change in either direction over time, for example, through organic growth or divestment. HMRC recognise this and so stipulate that your status remains unaffected (in terms of this legislation) until any change prevails for two consecutive claim periods; this ‘grace period’ enables you to continue claiming under the same rules in the first year of the breach. However, there is an exception…..

Which is?

If the breach is made as a consequence of acquisition, then the move to claim under the RDEC legislation takes effect from the beginning of the claim period in which the acquisition took place, and not simply from the date of

Are the schemes interchangeable?

Not as such, although there are circumstances where SME businesses may be forced to claim under the RDEC scheme and generally arise where grant funding has been acquired, or where the work has been undertaken as a subcontractor to an RDEC-size company.

OK, but what difference does it all make?

Well, quite a lot as it happens. Under the SME guidelines, every £1 of compliant expenditure attracts up to 33p in tax credits; switching to RDEC reduces this to around 10p. Additionally, certain types of expenditure which qualify under the SME scheme are prohibited under RDEC, and the process by which the benefit is delivered by the two schemes can be fundamentally different.

Thanks a lot; I’m much the wiser now…..

My pleasure; same time next week?

No question…….

Innovation Tax specialise in helping companies access vital funding and tax incentives to enable their businesses to grow, increase profitability, reduce risk and enable further investment in R&D and capital investments.

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on email
Share on Email
Share on whatsapp
Share on WhatsApp