R&D Tax Credits: Linked and Partner Enterprises Explained

Pocket

If you checked out our previous post, you will understand the importance of being autonomous when it comes to R&D Tax Credits.

However, sometimes your company (or you!) aren’t autonomous. You are a ‘linked or partner enterprise‘.

This is particularly important because it can affect whether your company is eligible for the SME scheme, or the far less generous RDEC.

Tax Credits tips straight to your inbox
For all the latest tips and tricks for claiming R&D Tax Credits, make sure you sign up to our newsletter!

Linked Enterprise

In short, your company is considered to be linked to the owner of your shares if one of the following is true:

  • the other company owns more than 50% of the voting rights,
  • they can appoint or remove a majority of your management team,
  • they can exert a “dominant influence” over your company,
  • they can indirectly achieve the above via agreements with other shareholders.

Basically, if they control your company, you are “linked”.

Alongside this, it is possible that you can be linked through an individual as well, providing you are both in the same industry.

A good example of this is if you were running a small SME airline and Richard Branson personally owns 51% of your company. In that case, you are also linked to any other companies which he owns 51% or more of. Virgin Airlines, for example.

This is particularly important as your numbers would then be aggregated with the others, meaning your company would likely not fit in under the SME scheme and the R&D Tax Credits become a less attractive option.

This would also apply if you were linked to a VC fund which manages, say, more than €50m.

Partner Enterprise

There is another case to consider: if you are not autonomous, but the other company is not considered linked. Here’s an example. If PartnerCo owns 30% of your business, you are a partner of PartnerCo. But, because they don’t control you, you are not linked.

So what happens then? Well, you may have a chance to still fall under the SME R&D Tax Credits scheme. To figure it out, multiply the shareholding by the turnover, balance and staff count of the other company.

For example, if you were 30% owned by PartnerCo back when they only had €10m of balance, they would only add €3m to your own balance, for the purpose of figuring out whether you’re an SME.

So if you had €1m of balance, adding the two together would result in €4m, well under the SME limit.

If you had €1m of balance, and 30% owned by PartnerCo when they were worth €100m, your balance aggregate would be €31m. So you would still qualify as an SME, even though PartnerCo would not be.

Finally, if you were 30% owned by PartnerCo when they had €1b of balance, your aggregate would be €301m. In that case, you would not be an SME.

It works in reverse too!

As a final thought, it’s worth pointing out that this works both ways. If your company owns more than 25% of a large company, you are considered in aggregate with that company. Even if you have zero turnover, you will still not be considered an SME.

In this latter case, you would still count as autonomous, however, because Sequoia is a venture company. HMRC explicitly allows up to 50% ownership by:

  • public investment corporations and VCs,
  • individuals or groups of individuals with a regular venture capital investment activity who invest equity capital in unquoted businesses (‘business angels’). Provided the total investment of those business angels in the same enterprise is less than €1.25 million,
  • universities or non-profit research centres,
  • institutional investors, including regional development funds,
  • autonomous local authorities with an annual budget of less than €10 million and fewer than 5,000 inhabitants

Questions?

Still confused? Please don’t hesitate to get in touch!

We are always happy to help you explore your funding options, regardless of the size of your company.

If you are curious about R&D Tax Credits, Innovation Grants and Open Culture

GET IN TOUCH

GrantTree
ABOUT THIS AUTHOR
GrantTree








LATEST ARTICLES