Linked and partner enterprises decide whose figures the SME test is run on. The thresholds — fewer than 500 staff, and either turnover of €100m or less or a balance sheet total of €86m or less — apply to your wider group rather than to the claimant company by itself. A linked enterprise’s headcount, turnover and assets are added to yours in full; a partner enterprise’s are added in proportion to the holding. So a company whose own accounts look modest may already be outside the definition, on figures it never reports. The wider group rules — surrender, connected-party costs and who claims — are in R&D tax relief in groups.
Under the current schemes this bites in one place. The merged scheme applies to companies of every size at the same credit rate, so aggregation changes nothing there. ERIS is the exception: only SMEs can claim it, and the difference between 26.97p and 16.2p per £1 of qualifying spend turns on the answer.
Linked or partner: where the line sits
A linked enterprise is one that controls you or that you control, typically through more than 50% of the voting rights. Everything it has counts, whole: staff, turnover, balance sheet total.
A partner enterprise holds between 25% and 50%, and comes in proportionately. Where a partner holds 40%, four-tenths of that partner’s own headcount, turnover and balance sheet total comes into your figures — the fraction applies to the partner’s numbers, not yours. Below 25%, nothing is added.
The two halves of the definition behave differently. Headcount is a hard gate: at 500 staff or more the company is out, whatever the financial figures show. The financial limits are alternatives: only one of the two needs to hold, so a company over the turnover ceiling still qualifies if its balance sheet is within the limit, and the other way round. Both financial limits are set in euros while UK accounts are usually prepared in sterling, so close to either figure the exchange rate stops being a rounding question and starts deciding the answer.
ERIS aggregates a second time, on a different test
Passing the size test does not settle the group question for an ERIS claim. The 30% intensity condition brings connected companies into both sides of its ratio, and connection is not the same concept as a linked or partner enterprise. Its window is the whole accounting period rather than a snapshot at either end: one day of connection brings a company in for the whole period, so a subsidiary acquired or sold mid-year does not drop out of the arithmetic. Amounts moving between connected companies are taken out of the count — the statute reaches a payment or other transfer of value, a phrase that catches more than money changing hands — so a recharge inside a group is not counted at both ends.
The practical effect is that a group can pass the size test and fail the intensity one. A development company sitting far above the threshold on its own figures can be pulled under it by a trading sister carrying heavy non-R&D costs. The ERIS intensity calculator works the ratio out on a basis that includes your connected companies.
Who stays out of the aggregation
Not every holder above 25% creates a partner enterprise. A defined group is carved out: universities, institutional investors, regional development funds, venture capital companies, and business angels investing below €1.25m in aggregate. Two conditions attach. The holding must stay at or below 50%, and there must be no other route by which the two enterprises are linked. That carve-out keeps many venture-backed companies inside the SME definition, and it stops applying the moment a stake crosses 50% — at which point the investor is a linked enterprise and its figures come in whole.
Where an incoming stake does take a company over the limits, the usual grace year may not be there to absorb it: see what happens if my company outgrows the SME definition.
Where to go next
The aggregation runs on figures that sit outside your own statutory accounts, which is why it tends to surface during an HMRC check rather than before one. If a funding round is in progress, or the group has changed shape since the last claim, that is a case to take advice on before the year end — while the workings can still be documented as they stood.
Sources
- Section 1119, Corporation Tax Act 2009 — the SME definition, taken from Commission Recommendation 2003/361/EC and qualified by sections 1120 to 1120B.
- Section 1120, Corporation Tax Act 2009 — the staff, turnover and balance sheet thresholds for the R&D SME definition.
- CIRD91800: staff headcount, turnover and balance sheet total — how the limits are measured, and the euro conversion.
- Section 1045ZA, Corporation Tax Act 2009 — the intensity ratio, the exclusion of a payment or other transfer of value to a connected company, and connection on any day in the period.
- CIRD123000: ERIS — HMRC’s manual on the intensity calculation, including connected companies.
- CIRD91900 — the R&D SME thresholds: fewer than 500 staff and either turnover of €100m or less or a balance sheet total of €86m or less.
This page describes the rules as they stood at the review date above, as general information rather than advice on your circumstances. For how that distinction works, see our terms; for an answer on your own facts, talk to us.