CIRD90050 - R&D tax relief: SME scheme: overview
The original R&D tax relief scheme introduced in FA00 (now in CTA09/Chapter 13) is aimed only at companies that are SMEs. The definition of such enterprises is dealt with fromCIRD91000听辞苍飞补谤诲蝉. The definition is not exclusive to companies, although the relief is only available to those within the scope of corporation tax. A large company for the purposes of the large company scheme is one that does not meet the definition of a small or medium enterprise.
The SME R&D tax relief scheme
In essence, SME companies incurring R&D expenditure within the rules of the scheme聽CIRD90100聽can obtain enhanced deductions from their taxable profits. The rate of enhancement will depend upon when the expenditure is incurred. The rates of enhancement can be found in CIRD80260.
If companies are unable to use any tax losses resulting from this enhanced deduction, then there are provisions whereby they may be able to surrender those losses for a payable tax credit聽CIRD90500.
The payable tax credits are percentage of the surrenderable loss. The percentages which applied at a particular time can be found in CIRD80260.
For accounting periods ending before 1 April 2012, there are limits on the amount of payable credit linked to the PAYE and NIC position of the company. These limits do not apply for accounting periods ending on or after 1 April 2012.
The concept of an SME is a European one, and we have to apply it in a way that complies with European rules on unlawful State Aids, in order to avoid breaching these rules.
Commencement Dates
Because of its status as a State Aid changes to the SME R&D regime have to be notified to, and approved by the EU. They cannot come into force until approval is given. For that reason, the commencement dates for new measures (such as the extension of qualifying expenditure to include payments for externally provided workers聽CIRD84000) may differ between the SME and large company schemes, as the large company changes can be introduced without waiting for EU approval. The BIS website contains further information and links to relevant European documents.
The large company scheme and SMEs
In certain circumstances companies that are barred from making claims under the rules of the SME scheme can instead claim the particular expenditure as eligible within the large company scheme. See聽CIRD81670聽for subsidised expenditure and聽CIRD89500聽for large company R&D subcontracted to an SME.
Transitions from SME to large company
When a company changes its status between SME and large company, there are provisions that may delay a change in its tax treatment. See聽CIRD92000.
Insurance companies
An insurance company that carries on life assurance business as defined by聽ICTA88/S431 (2)聽and qualifies as an SME can obtain relief for R&D expenditure against non-trading income under the large company scheme. See聽CIRD89600. It can claim under the normal SME scheme rules for R&D expenditure set against trading income.
Operation of scheme and more detailed rules
This is dealt with from聽CIRD90100听辞苍飞补谤诲蝉.