What happens if the size of my business expands from a Small and Medium Enterprise to a Large Company?
Imagine your business has yielded so much success and growth that it can no longer be classified as a Small and Medium Enterprise (SME). Let’s say that as of 1 July 2022, your business had a headcount of 708 employees, and the gross balance sheet assets just about exceeded €86 million; as such, it now technically meets the requirements of a Large Company (LC).
Let’s also say that your business’s accounting period ends on 31 December of each year, meaning the 2022 accounting period ran from 1 January 2022 to 31 December 2022. If you had limited experience or knowledge of R&D tax relief claims, you would expect that your business would need to claim under the Research and Development Expenditure Credit (RDEC) scheme from the accounting period ending 31 December 2023 onwards. However, this is not correct in many cases. A ‘period of grace’ applies where the transition arrangement does not occur until the position is repeated for a second consecutive year.
This means that for the example given, your business will continue to claim under the SME scheme for the accounting period ending 31 December 2023 but will need to claim under the RDEC scheme for the accounting period ending 31 December 2024, and any other future claims made beyond this point. This principle also applies where a LC transitions to an SME.
It should be noted that there are several exceptions in which the transition arrangements do not honour a period of grace. Coming to a conclusion as to whether your business is a SME or LC, and whether your business’s transition arrangement requires a position to be repeated for two successive years, is complex to efficiently and correctly navigate without any specialist guidance. Moore R&D has a team of experts with a robust understanding of this principle and are more than happy to offer support; all you need to do is contact us, and we will allay any uncertainty.
