How HMRC handles R&D tax credits for group companies

If you’re part of a parent company or one of its subsidiaries, it’s important to understand the rules around HMRC R&D tax credits for group companies. Linked and partner enterprises, intra-group cost sharing, consolidated turnover and differences in staff totals can change how your R&D relief is calculated.

Misunderstanding R&D tax credits group company UK rules can lead to missed relief, HM Revenue & Customs (HMRC) enquiries, and even penalties. At Alexander Clifford, we specialise in helping complex groups navigate HMRC’s claim rules with clarity, compliance, and optimisation.

How does R&D tax relief define a ‘group company’?

HMRC does not define ‘group companies’. According to CIRD guidance, linked enterprises cover companies in the same corporate group where one enterprise controls another. Control usually means holding more than 50% of the capital or voting rights, or otherwise having the capacity to control the other’s affairs, and you aggregate 100% of staff, turnover and balance sheet totals across all linked entities.

Where ownership lies between 25% and 50%, these businesses are considered partner enterprises in R&D tax credits group company UK guidelines.

This distinction between group company R&D tax credit rules UK and criteria for linked enterprises or partnerships will help you determine whether your company qualifies under the SME scheme or the RDEC scheme.

How do I work out my group structure when claiming R&D tax relief?

Group company R&D tax credit rules UK can be difficult to navigate. Your small or medium enterprise (SME) may easily meet the size limits for the SME scheme, but a parent company with several subsidiaries might not.

What’s the ‘connected persons’ test?

Under the connected persons test used in HMRC R&D tax credits for group companies, you’re a group structure if one member has control over two or more companies, or if a group of two or more people have control of each company. This test applies both up and down the ownership chain and across sister companies, and can change your SME status, and which scheme applies.

How do I calculate SME status for group entities?

To qualify as an SME when claiming R&D tax credits for group companies UK, you must have less than 500 employees, and either a turnover below €100 million or a balance sheet total below €86 million. For company groups, these figures must be aggregated for all linked and partner enterprises. E.g. if your company owns 60% of another, you must include 100% of their staff, balance sheet total and turnover in your total.

How does HMRC determine company size? – linked and partner enterprise tests

What’s the linked enterprise test?

A linked enterprise according to HMRC R&D tax credits for group companies is where one company has more than 50% control of another. Under the consolidation test, the staff, turnover, and balance sheet totals of all linked companies are added together. For example, if a parent company has two subsidiaries, their figures must all be included in the group total.

What’s the partner enterprise test?

A partner enterprise is defined by HMRC as one company which owns between 25% and 50% of another. Only a proportionate share of staff and turnover is included (based on ownership percentage). E.g., if your business owns 40% of another, 40% of that company’s figures are aggregated.

Why this affects your R&D tax relief scheme

The sum of total staff and financial figures can push your group above SME limits when claiming HMRC R&D tax credits for group companies, so you’ll need to claim via the RDEC scheme instead. For post 1 April 2024 accounting periods, you’ll claim through the merged R&D scheme. Make sure you evaluate your group aggregate.

Which R&D tax relief schemes can group companies apply through?

There were two R&D schemes – the SME scheme (which offers higher rates for small and medium enterprises) and the RDEC scheme (which offers above-the-line credit for large companies). From 1 April 2024, you’ll claim under the new merged R&D scheme, under a unified set of rules, and an approximate credit rate of 20%. Each entity must still assess which company within the group makes the claim.

Who should claim, and what’s the best strategy?

How do I identify the claiming entity?

To create the best internal group claim strategy, consider which company holds the qualifying expenditure, and which benefits from the R&D payout. Consider where your staff are employed, which entity owns your intellectual property, and whether intercompany charges exist. You may need documents as proof.

How do I surrender losses within a group?

If your group company has surrenderable losses, they can be surrendered either to HMRC for a payable credit or to another group member. E.g., if one company undertakes R&D but makes a loss, they can surrender those losses to the linked company to better the group’s overall tax position.

How do I document cost apportionment?

If your group companies share staff or costs, those R&D expenses must be apportioned fairly according to HMRC R&D tax credits rules for group companies. HMRC will expect to see timesheets, intercompany invoices, and expenditure breakdowns as supporting evidence. Thorough, contemporaneous records can help prevent a compliance risk or HMRC enquiry.

What’s an example of a parent company with two subsidiaries?

Imagine a parent company (claiming HMRC R&D tax credits for group companies) has two subsidiaries but holds the IP. The first subsidiary carries out all R&D activities, while the second sells the resulting products. In this case, the first company may be the correct claimant for qualifying expenditure.

HMRC compliance risks in group claims

We often see these common mistakes in HMRC R&D tax credits involving group companies:

• Incorrect calculation of combined turnover or staff numbers
• Using the wrong scheme due to miscalculations
• Allocating R&D costs to the wrong subsidiary
• Lack of evidence for intra-group recharges

To avoid these pitfalls, keep clear documentation like internal audit trails. HMRC guidance highlights that compliance failures can delay or reduce your claim.

When claiming HMRC R&D tax credits for group companies, make sure to:

• Show group structure and ownership
• Clarify linked and partner enterprise relationships in terms of R&D tax relief 
• Assess intercompany R&D contracts
• Record detailed cost evidence and timesheets
• Conduct annual internal reviews

What is the impact of the merged R&D tax relief scheme on group companies?

From 1 April 2024, group company R&D tax credit rules UK dictate that you’ll claim under the simplified merged R&D scheme, which requires even higher compliance and transparency. The unified rate of 20% is accounted similarly to RDEC, with taxable credits treated as above the line. (The group size test and intra-group charging still apply.)

Reassess your claiming entity under the merged scheme to optimise benefits while maintaining compliance with HMRC claim rules.

What should group companies do now?

To stay compliant and maximise relief for HMRC R&D tax credits for group companies:

• Understand your group structure
• Calculate your staff and turnover totals
• Determine which scheme you’ll claim through
• Decide which company should claim
• Ensure all intra-group recharges are documented
• Prepare for HMRC enquiries with contemporaneous documentation
• Seek advice from an R&D specialist before submission

Why choose Alexander Clifford for group company R&D tax credit advice?

At Alexander Clifford, we specialise in guiding complex groups through the nuances of group company R&D tax credit rules UK. 

Our team ensures compliance with HMRC guidance, optimises claim value, and provides full documentation support for accountants, directors, and investors.

HMRC R&D tax credits for group companies – FAQs

Can a parent company claim R&D tax relief for its subsidiary’s research activities?

Yes, but only if the parent claiming HMRC R&D tax credits group companies bears the financial risk or reimburses the subsidiary. The claimant must be the company incurring the qualifying expenditure. If not, the subsidiary is the eligible claimant.

How do I know if my company is a linked or partner enterprise for R&D tax relief purposes?

Understanding linked and partner enterprises for R&D tax relief involves understanding your shareholding and control. If one enterprise holds more than 50% of the capital or voting rights of another, you’re linked enterprises. If one enterprise holds between 25% and 50% of the capital or voting rights, you’re partner enterprises.

What happens if a group company that made the R&D claim is later audited by HMRC?

HMRC may request documentation and cost evidence during a compliance check for HMRC R&D tax credits for group companies. A strong audit trail can verify your claim’s accuracy and eligibility, and reduce the risk of adjustments or penalties.

Does the merged scheme from 1 April 2024 change how group companies must claim R&D tax relief?

Yes, it aligns with RDEC accounting treatment, meaning your HMRC R&D tax credits for group companies are taxable income. This affects how R&D credits appear in your consolidated accounts, and alters which entity can claim. 

How should a multi-company group apportion R&D expenditure for a claim?

Costs should reflect actual R&D activity, supported by internal documentation, time tracking, and invoices between group members. Make sure you use ‘just and reasonable’ methodology, include evidence, show a direct link between R&D and your expenditure, and be consistent.