To be eligible to recover your R&D expenditure, several criteria must be met:
- You must be a UK Limited company eligible to pay corporation tax
- You need to have undertaken eligible R&D activities
- There must have been time and money spent on these activities
Companies in all sectors are eligible for R&D tax relief, ranging from construction and brewing to jewellery manufacture and printing.
There are two R&D schemes for companies of different sizes; one for Small to Medium Enterprises (the SME R&D tax credit scheme) and one primarily for large companies (the Research and Development Expenditure Credit, or RDEC, scheme).
Apogee Associates are experts in both, and will be able to advise on which scheme you fall into. Our bespoke service will ensure your application is processed using a methodology that is tailored to your business.
You’re eligible under the SME R&D tax credit scheme if:
- You have fewer than 500 staff
- You turnover less than €100m or have less than €86m total assets on your balance sheet
You qualify under the RDEC scheme if:
- You do not meet the criteria of the SME R&D tax credit scheme
- You meet the criteria for the SME R&D tax credit scheme but have been in receipt of notifiable state aid
There are circumstances where you could qualify under both the SME and RDEC scheme; we will be able to advise you on this during our conversations.
How do you calculate your number of staff for the purpose of R&D tax credits?
Your total number of staff is calculated by considering all directors and employees on payroll; part time staff are included but are calculated differently. For example, if an employee worked four out of five working days, they would count as 0.8 of a unit towards the headcount. Some staff are excluded from the headcount, including apprentices, students on vocational training and individuals on maternity or paternity leave.
How do you calculate your turnover and balance sheet totals for the purpose of R&D tax credits?
As the vast majority of UK company accounts will be drawn up in GBP as opposed to Euros, for the purpose of determining your eligibility for R&D tax credits, the gross amount of your assets and turnover (exclusive of VAT and other indirect taxes) must be converted into Euros.
Can being part of a group affect my eligibility for R&D tax credits?
Being part of a group (or even sharing an owner with another company) can affect how you calculate your employee headcount, turnover and balance sheet total. This can either be through a “linked enterprise” or a “partner enterprise”. The definition of both (and how they adjust your calculation) are as follows:
Your company is considered linked when any of the following criteria are met:
- Another company or individual owns more than 50% of the voting rights
- Another company or individual has the ability to exert a dominant influence over your company
- Another company or individual has the power to appoint or remove senior management members
If your company is linked to another enterprise, the other entity’s headcount, turnover and balance sheet total must be be aggregated into your own, which may affect your eligibility for R&D tax credits.
Your company is considered partnered when an enterprise owns between 25% and 50% of the shares or voting rights, or even if your company owns between 25% and 50% of the shares or voting rights of another business.
Partnered enterprises will adjust your total headcount, turnover and balance sheet total by aggregating the relevant proportion of data of the partner companies with your own. For example, if an enterprise has a 30% shareholding in your business, 30% of their headcount, turnover and balance sheet total must be factored into your own when considering eligibility for R&D tax credits.
Some entities cannot be considered a partner enterprise; these include Venture Capital (VC) firms, business angels, universities and non-profit research centres, institutional investors (including regional development funds) and autonomous local authorities with an annual budget of less than €10 million and fewer than 5,000 inhabitants. However, all of these enterprises can still be considered linked, so if their shares in a company exceeds 50%, their entire portfolio must be aggregated with your figures when determining eligibility.