Definition
A small or medium-sized enterprise, or SME, for R&D tax relief purposes is a company that meets the size tests in the EU SME Recommendation 2003/361/EC as adopted by UK legislation. The thresholds are fewer than 500 staff and either annual turnover up to €100 million or a balance sheet up to €86 million, measured at group level with connected and partner enterprise aggregation. The SME scheme was the enhanced relief route until 31 March 2024. From 1 April 2024 SMEs claim under the merged scheme, with loss-making R&D-intensive SMEs using ERIS.
How HMRC defines it
HMRC guidance on the SME definition is at CIRD81900 and CIRD92900 of the CIRD Manual. The statutory adoption of the EU SME Recommendation thresholds for R&D tax relief is at section 1119 of the Corporation Tax Act 2009. The connected and partner enterprise rules are derived from paragraphs 2 and 3 of the annex to the recommendation.
Practical example
A UK trading company has 200 staff, turnover of £30 million and a balance sheet of £20 million. It is owned 30% by a UK investor group with no other relevant holdings. The company is within the SME thresholds and was eligible for the SME scheme until its accounting period that began before 1 April 2024. For later periods it claims under the merged scheme, with potential access to ERIS if loss-making and R&D-intensive.