What is the definition of an SME for UK R&D tax credits?

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You may be aware that there are two schemes for the UK Government R&D tax incentive:

  1. SME R&D tax incentive
  2. Large Company R&D tax incentive

The SME R&D tax incentive is far superior to the R&D tax relief aimed at Large Companies in terms of the amount of tax relief and therefore potential cash tax savings at stake.

Fortunately, the size limits governed by the EU are quite large for the purposes of defining an SME for UK R&D tax credits purposes. In order to be an SME a company must have:

  • Fewer than 500 employees AND
  • Balance Sheet total (ie gross assets) not exceeding €86m OR
  • Turnover not exceeding €100m.

This should cover 90%+ of companies allowing them to claim under the more favourable SME regime – although you need to take care in group situations especially where another company owns 25% or more of your company and/or your company has a stake of 25% or more in another company.