What is the process for switching your status between SME and RDEC?

As your business scales up or down, you might not qualify for the same R&D tax credits as before. These changes won’t affect your status until they apply for two years in a row, known often as the ‘year of grace.’

If a large company buys your SME however, this grace period is skipped and you’re immediately considered as a large company. This is important in industries with many mergers and acquisitions.

Switching between SME and large company status may affect the R&D tax credit benefits you get, depending on the beginning of your accounting period. This is because the rates and qualifying expenses differ between the SME and RDEC schemes.

If your accounting period begins on or after April 1st 2024 however, the R&D tax credit benefits will be the same regardless as to whether your company is classed as large or as an SME. This is due to recent HMRC legislation changes that introduces a new merged R&D tax credit scheme.