Finance (No. 2) Act 2023

R&D tax relief: circumstances in which enterprises are treated as SMEs U.K.

16 (1) In section 1119—

(a) in subsection (1), at the end insert “(and see sections 1120A and 1120B)”;

(b) in subsection (2), for “section 1120” substitute “sections 1120 to 1120B”.

(2) In section 1120 (qualifications to section 1119)—

(a) after subsection (6) insert—

“(6A) This section is subject to sections 1120A and 1120B.”;

(b) in subsection (7), in the words before paragraph (a), after “section” insert “and in sections 1120A and 1120B”.

(3) After that section insert—

“1120A Enterprise treated as an SME where related enterprise becomes large

(1) This section applies, in relation to an accounting period, where the following conditions are met.

(2) The first condition is that, for the duration of the accounting period, an enterprise (“E”) is related to a partner enterprise or linked enterprise (“F”).

(3) The second condition is that, at the start of the accounting period, both E and F are small or medium-sized enterprises.

(4) The third condition is that, at the end of the accounting period, E is not a small or medium-sized enterprise by reason only that F has, during the accounting period, exceeded the employee limit or either of the financial limits.

(5) Both E and F are to be treated as if they were small or medium-sized enterprises for the accounting period.

1120B Enterprise treated as an SME where acquired by an SME

(1) This section applies, in relation to an accounting period, where the following conditions are met.

(2) The first condition is that, at the start of the accounting period, an enterprise (“E”) was not a small or medium-sized enterprise by reason only that a partner enterprise or linked enterprise to which E was related exceeded the employee limit or either of the financial limits.

(3) The second condition is that, during the accounting period, control of E was acquired by a company that, at the time of the acquisition, was a small or medium-sized enterprise.

(4) E is to be treated as if it were a small or medium-sized enterprise for the accounting period.

(5) In subsection (3) “control” has the same meaning as in section 1124 of CTA 2010.”