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Research & Development Allowances - Do you risk becoming large?

HM Revenue & Customs have announced a change in their interpretation of research and development (“R&D”) allowances available to companies that cease to meet the criteria for small and medium enterprises (“SME”) during an accounting period.

The current position is that a company which is an SME for any part of an accounting period will be treated as an SME throughout that period, irrespective of whether it merges its activities with other companies, or is bought by a large company, at some point during that year.

The Revenue’s announcement effectively reverses this agreed practice.

The Revenue’s view is that, with effect from 1 December 2008, any company ceasing to be an SME, either because it is taken over or merges with another company, will be regarded as a large company throughout that accounting period.

The R&D allowances available to SMEs are generally much more generous than those offered to large companies and it is possible that deferring an agreement by a few days, or changing a company’s year end, might be beneficial.

The criteria for SMEs are as follows:-

  • fewer than 500 employees; and either
  • annual turnover of less than €100m; or
  • total assets below €86m.

Where the company is part of a group, these limits apply to the whole of the group.

If you fear that this may affect you – and would like to discuss both the possible implications and how you might lessen the impact of this change in interpretation – please contact Cathy Corns or me.



Date: 28th November, 2008
Author: David Mansell


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