Due to recent changes to the large company research and development (R&D) tax relief scheme, the government has been forced to issue revised rules for small to medium sized companies (SMEs) claiming R&D tax relief to ensure the scheme falls within EU state aid rules
The revision to current arrangements for claiming R&D tax relief was introduced in the Budget to avoid a potential reduction in the overall claimable benefit due to state aid caps.
It will affect small and medium-sized companies (SMEs) making claims for R&D tax relief within the SME scheme where any claim for an individual project exceeds €7.5m (£5.9m).
The SME R&D scheme is a notified state aid under EU rules and no one company can receive aid in excess of €7.5m for any one project.
When calculating whether this cap has been exceeded, companies can ignore any aid which represents a notional amount which could be claimed under the Large Company Relief (that scheme is not a state aid). This calculation is to the SME’s advantage as it reduces the amount of aid which counts towards that €7.5m cap.
At the same time, the way in which companies obtain benefits within the large company relief has changed. This measure ensures that, despite the fact that relief for larger businesses has changed, SMEs continue to get the same benefit from the calculation which is required by statute.
Without these changes that benefit would not apply for SME claims covering the period after 1 April 2016.
Those businesses which have to make the calculation and which have an accounting period straddling 1 April 2016 will, for that accounting period only, incur a negligible one-off extra cost to carry out the calculation.
The TIIN, Update to the small and medium-sized companies (SMEs) R&D tax relief: state aid calculation, is available here