As your business scales up or down, you may no longer meet the eligibility criteria for the previous scheme you received R&D tax credits from.
These modifications will not impact your company’s status until the conditions are satisfied for two consecutive years. This period is commonly referred to as the ‘year of grace,’ allowing you to maintain your current status during the time when the thresholds are initially crossed.
However, there is one exception to this rule. If an SME is acquired by a large company or group, the year-of-grace provision is suspended, and the SME is considered a large company from the time of acquisition. This change in status applies for the entire period, not just from the date of acquisition.
This consideration is particularly crucial in sectors characterised by significant merger and acquisition activities.
Switching your status between an SME and a large company will have an impact on the overall benefit you receive from R&D tax credits. The rate of R&D tax credit varies between the SME R&D tax credit scheme and the RDEC scheme.
Additionally, there are other distinctions between the two schemes, including the types of expenditures you can include in your claim and the relief mechanism applied.