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Any type of company can make a claim. Eligibility depends on the company incurring qualifying expenditure of at least £10,000 per annum. In turn, SMEs’ can gain an additional 75% tax deduction for expenditure on qualifying activities while large companies can claim 30% relief.
Most claims for qualifying expenditure will be related to consumables and staff costs, with special rules applying to agency worker and subcontractor costs. Activities that qualify must aim to gain significant scientific or technological advance by resolving a scientific or technological uncertainty.
If an SME is loss-making it can surrender its enhanced deduction for a tax credit repayment of up to 24.5% of actual expenditure. This is capped at the PAYE/NIC contributions made by the company in the accounting period.
So how do you define a ‘Large Company’?
In simple terms, it is a company that is not an SME. The European Commission defines a SME as a company with less than 500 employees (or 250 for expenditure incurred prior to 1st August 2008) including all its other companies in the worldwide group. In addition, either its turnover must not exceed €100m (€50m before 1st August 2008) or its balance sheet total must not exceed €86m (€46m before 1st August 2008).
A large company that does not meet these criteria over two accounting periods will be redefined as a SME. Likewise, a company is defined as an SME until it fails these criteria for two consecutive accounting periods. (Note: when a company joins or leaves their group, special rules apply.)
Watch out for the claim deadlines!
Both SMEs and large companies have two years from the end of the accounting period in which the expenditure was incurred, to claim the 75% or 30% relief respectively. The same time limit applies to SMEs’ claims to surrender the enhanced loss for a tax credit repayment.
Further DTI guidance on HMRC qualifying activities is available here: http://www.berr.gov.uk/files/file13258.pdf