Published 02/07/2019

Modified 08/02/2023

4 min read

Which R&D scheme am I entitled to claim under?

There are two R&D Tax Credit schemes, one for SMEs and the Research & Development Expenditure Credit (RDEC) for large companies. Which scheme you claim under depends primarily on your turnover and number of employees, however, its not always as simple as that!

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’, they would 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.

Which scheme you claim under depends primarily on your turnover and number of employees, however, its not always as simple as that!

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 acquisition.

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…….

HOW CAN WE HELP?

It can be challenging to submit an R&D Tax Credit claim to HMRC’s exacting standards.
At Innovation Tax, our team of experienced sector specialists, technical and quality assurance experts and tax professionals will help you identify the full extent of your qualifying activities and expenditure and work with you to ensure the correct information is included in the claim documentation, giving you peace of mind that your claim is robust, maximised and defendable.

Start the conversation with a complimentary, no-obligation discussion.

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

Which R&D scheme am I entitled to claim under?

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?

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

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?

I think so…….

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

What if I’m part of a larger group?

And what happens if we breach these restrictions?

Which is?

Are the schemes interchangeable?

OK, but what difference does it all make?

HOW CAN WE HELP?

Start the conversation with a complimentary, no-obligation discussion.

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