Update to the small and Medium-Sized Enterprises Research and Development relief: state aid cap calculation
Published 16 March 2016
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This publication is available at https://www.gov.uk/government/publications/update-to-the-small-and-medium-sized-enterprises-research-and-development-relief-state-aid-cap-calculation/update-to-the-small-and-medium-sized-enterprises-research-and-development-relief-state-aid-cap-calculation
Who is likely to be affected
Small and medium-sized companies (SMEs) making claims for Research and Development (R&D) tax relief within the SME scheme where any claim for an individual project exceeds €7.5million.
General description of the measure
The SME R&D scheme is a notified state aid and no one company can receive aid in excess of €7.5million for any one project. When calculating whether they have exceeded this €7.5million cap 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 €7.5million cap.
The way in which companies obtain benefits within the Large Company relief has changed. This measure ensures that, despite the fact that the Large Company relief 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.
Policy objective
This measure will prevent an unintended reduction in the R&D relief available to some SMEs when the Large Company relief - which is being replaced by Research and Development Expenditure Credit - expires on 31 March 2016.
Background to the measure
Chapter 2 of Part 13 to Corporation Tax Act 2009 provides tax relief for SMEs undertaking qualifying research and development activities. This relief is in the form of an enhanced deduction in respect of qualifying expenditure which reduces the tax payable or increases the tax losses arising. In some circumstances companies can surrender their losses in return for a payable tax credit. A cap on this R&D aid was introduced by Schedule 10 to Finance Act 2008 to ensure that the aid continued to meet the requirements of the Community Framework for State aid for Research and Development and Innovation.
Detailed proposal
Operative date
The revised calculation will apply in respect of expenditure incurred on or after 1 April 2016.
Current law
Current law on the cap on R&D aid in the SME scheme is in Chapter 8 of Part 13 to Corporation Act 2009.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to make changes to the formula in section 1114 of Corporation Tax Act 2009 (CTA 2009) and to amend the definition of ‘notional relief’ in section 1118 of CTA 2009 in consequence of the Research and Development Expenditure Credit replacing the Large Company relief in respect of expenditure incurred on or after 1 April 2016.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The measure is not expected to impact on individuals, households or family formation, stability or breakdown.
Equalities impacts
There are no significant impacts on groups of people sharing protected characteristics differently to other groups, and no equalities impacts have been identified.
Impact on business including civil society organisations
This measure ensures that, despite the fact that the Large Company scheme has changed, SMEs and civil society organisations continue to get the same benefit from the calculation which is required by section 1114 of CTA 2009. 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.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
There will be no significant impact on HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, please contact Aziz Yusuf on Telephone: 03000 544 463 or email: aziz.yusuf@hmrc.gsi.gov.uk.