Who qualifies for the SME R&D tax credit scheme?
Answered 17 March 2026
Here is a comprehensive answer on who qualifies for the SME R&D tax credit scheme.
Who Qualifies for the SME R&D Tax Credit Scheme?
What the law says
The SME R&D relief scheme is contained in Chapter 2 of Part 13 of CTA 2009. To qualify, a company must satisfy both a size test and a series of scheme-specific conditions.
1. The SME Size Test
For expenditure incurred on or after 1 August 2008, a company qualifies as an SME for R&D purposes if it meets the EU SME definition but with widened thresholds — specifically, it must employ fewer than 500 persons and have either an annual turnover not exceeding €100m or an annual balance sheet total not exceeding €86m.
The standard (narrower) EU SME definition requires fewer than 250 employees and either turnover not exceeding €50m or a balance sheet not exceeding €43m. The independence test under the EU definition must also be satisfied.
2. Scheme-Specific Conditions
In order to qualify for relief under the SME scheme, the following conditions must all be met:
- The company must be an SME (as above).
- The company must not be in receipt of a notified State aid in respect of the R&D project.
- The expenditure must not be subsidised.
- The company must not have been contracted to carry out the R&D (i.e., it cannot be a subcontractor performing R&D on behalf of another party).
- The company must be a going concern.
- The total aid for the R&D project must not exceed €7.5m.
The intellectual property condition (requiring IP to vest in the company) was abolished for accounting periods ending on or after 9 December 2009.
HMRC Guidance / Practice
HMRC's eligibility checklist confirms the key qualifying thresholds in practical terms:
- Turnover of the company (or group) not more than €100m, or balance sheet less than €86m.
- Fewer than 500 full-time staff (or equivalent).
- If the company has received a grant or subsidy, it may still qualify — unless the grant is a notified State aid, in which case the company is ineligible for the SME scheme (but may be eligible for RDEC instead).
HMRC also notes that companies excluded from the SME scheme (e.g., because their expenditure is subsidised or exceeds the €7.5m cap) may instead claim under the large company/RDEC scheme.
Additionally, where a Video Games Development Company (VGDC) claims Video Games Tax Relief (VGTR) on a project, it cannot also claim SME R&D relief on that same project, as both are State aid and cannot be combined.
Companies cannot claim both SME relief and RDEC on the same R&D expenditure.
Summary Table
| Criterion | Threshold |
|---|---|
| Employees | Fewer than 500 |
| Annual turnover | Not more than €100m |
| Balance sheet total | Not more than €86m |
| State aid received? | Must not be a notified State aid |
| Subsidised expenditure? | Must not be subsidised |
| Contracted to do R&D? | Must not be a subcontractor |
| Going concern? | Yes, must be |
| Total project aid | Must not exceed €7.5m |
Citation sources
qualifying expenditure to include payments for externally provided workers CIRD84000) may differ between the SME and large company schemes, as the large company changes can be introduced without waiting for EU approval. The BIS website contains further information and links to relevant European documents. Top of page The large company scheme and SMEs In certain circumstances companies that are barred from making claims under the rules of the SME scheme can instead claim the particular expenditur
2. 16. Those Regulations state inter alia that R&D will qualify if it accords with the Guidelines on the Meaning of Research and Development for Tax Purposes issued by the Department for Business, Innovation & Skills on 5 March 2004 (with amendments that are not material on 6 December 2010). Those were known as the BIS Guidelines and latterly, following a merger of Government departments, as the BEIS Guidelines. We annex relevant excerpts therefrom at Appendix 1. As can be seen from the Appendix
If the company has fewer than 250 employees, and has either: an annual turnover not exceeding €40 million, or an annual Balance Sheet total not exceeding €27 million, then it will be an SME so long as it satisfies the independence test. Measurement of staff headcount, turnover and balance sheet total is dealt with at CIRD91800. Top of page
Part 1 Income tax, corporation tax and capital gains tax Income tax and corporation tax R&D relief for SMEs: removal of intellectual property condition 13 1 Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows. 2 In section 1052 (qualifying expenditure on in-house direct R&D)— a in subsection (1), for “conditions A to E” substitute “ conditions A, B, D and E ” , and b omit subsection (4) (condition C: intellectual property created as result of
e various rules on State aid. Article 3 This Recommendation will replace Recommendation 96/280/EC as from 1 January 2005. Article 4 This Recommendation is addressed to the Member States, the EIB and the EIF. They are requested to inform the Commission by 31 December 2004 of any measures they have taken further to it and, no later than 30 September 2005, to inform it of the first results of its implementation. Done at Brussels, 6 May 2003. For the Commission Erkki LIIKANEN Member of the Commissio
SME Relief was extended in relation to expenditure incurred on or after 1 August 2008. For the purposes of R&D relief a SME is a company which meets the normal conditions specified in the EU SME definition, except that it employs fewer than 500 persons and has an annual turnover not exceeding €100m, and/ or an annual balance sheet total not exceeding €86m. Companies satisfying this widened definition are entitled to R&D relief under the SME, rather than the large company, rules. (CIRD91900)
ble for the R&D for SME scheme. However you may be eligible for R&D Expenditure Credits (RDEC). More information is available on gov.uk/researchand development tax relief for large companies. If no continue to the next question. 6. Is the turnover of your company (or group) not more than €100m or the balance sheet less than €86m? If yes, turnover less than €100m or the balance sheet less than €86m please continue. If no then your company is ineligible for the R&D for SME scheme. However you may
two or more different types of State aid. In fact, if a company claims VGTR in respect of a project, the SME R&D Relief legislation specifically stops any claim for SME R&D Relief. This is covered in s1138 CTA 2009 and still applies even if the company later withdraws a successful claim for VGTR. This means that if a VGDC chooses to claim VGTR, any R&D ‘bubble’ within that project wouldn’t qualify for R&D relief under the SME scheme.
In order to qualify for relief under the SME scheme the claimant company must be an SME (CIRD91000). The conditions that must be satisfied are dealt with at CIRD81000 onwards. Some conditions are specific to the SME scheme. These are: Intellectual property resulting from the R&D must vest in the company. This condition is abolished for accounting periods ending on or after 9 December 2009 (CIRD81550). The company must not be in receipt of a notified state aid in respect of the project (CIRD81670