Large Scheme, SME Scheme, R & D Tax Credit
An SME is a company that employs fewer than 500 employees and combined with group and partner / linked companies, has either:
- Turnover below Euro 100m or
- Balance Sheet total assets ( not net) below Euro 50m
The claimant needs to be engaged in independent R & D in its own right, rather than subcontracting on behalf of third parties or customers, and needs to be a ‘Going concern’.
The Scheme provides three routes to relief:
1. Corporation Tax Relief:
From 01 April 2012, SME’s can access relief of around £25,000 per £100,000 of eligible R & D expenditure.
2. Group and Future Tax Relief’s:
Where relief has either been repaid or absorbed in the claimant company, any surplus can be surrendered to other group companies or used to reduce future corporation tax liability. Where a company pays corporation tax by instalments, RDTR is an essential cash flow saving, reducing the claimant’s QIP profit thresholds.
3. Tax Credits:
The Tax Credit scheme applies to loss making SME’s enabling a cash surrender of R & D losses of 11%. Large companies now have a separate ‘R & D Enhancement Credit’, mirroring the SME scheme.
R & D Tax Credits can be repaid to the SME for R & D start-up costs even where no income has been received.
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A Large company is a company that is not an SME.
R & D Enhancement Credit
George Osborne renamed the ‘Above the Line’ tax credit scheme for Large companies, announcing the arrival of the ‘R & D Enhancement Credit’ from 01 April 2013. The scheme is voluntary until April 2016 and follows a considerable period of consultation with affected companies and HMRC. Broadly the scheme facilitates a taxable 10% credit to appear above the line and generate a cash repayment for eligible expenditure. [Read more…. Link to Blog 3….]
The Legacy ‘Large Company R & D Scheme’, Part 13, Chapter V, CTA 2009
This scheme runs alongside the RDEC scheme until April 2016, with the latter providing transitional and actual reliefs for Large companies wishing to claim the new credit.
The Old Scheme provides a tax uplift mechanism of 130% of the eligible R & D spend and contributions to independent research.
Whether a company should choose the Old or New Scheme will be governed by the wider group position and the need for more immediate ‘cash’ flow or the possibility of immediate future changes in the claimant’s trading activities.