--- title: What is an SME for R&D purposes? description: The government's definition of SME for R&D purposes is different to the definition for normal EU reporting. Read more in our guide. image: https://blog.shorts.uk.com/hubfs/SME-definition-UK.jpg --- [![Shorts_logo_White](https://blog.shorts.uk.com/hubfs/New%20Site%202018/Shorts_logo_White.svg "Shorts_logo_White")](https://www.shorts.uk.com/) [Blogs & News](https://blog.shorts.uk.com/) > [RADIUS - R&D Tax Relief & Patent Box](https://blog.shorts.uk.com/topic/radius-rd-tax-relief-patent-box) # What is an SME for R&D purposes? Darryl Hoy - 1 June 2023 ###### Select topic - Please Select - [ Audit ](https://blog.shorts.uk.com/topic/audit) [ Business Taxes ](https://blog.shorts.uk.com/topic/business-taxes) [ Radius – R&D Tax Relief & Patent Box ](https://blog.shorts.uk.com/topic/radius-rd-tax-relief-patent-box) [ Corporate Finance ](https://blog.shorts.uk.com/topic/corporate-finance) [ GENUS Management Accounts ](https://blog.shorts.uk.com/topic/genus-management-accounts) [ VAT ](https://blog.shorts.uk.com/topic/vat) [ Private Client ](https://blog.shorts.uk.com/topic/private-client) [ Payroll ](https://blog.shorts.uk.com/topic/payroll) [ EOT ](https://blog.shorts.uk.com/topic/eot) [ International Taxes ](https://blog.shorts.uk.com/topic/international-taxes) ![featured image](https://blog.shorts.uk.com/hubfs/SME-definition-UK.jpg) An SME is a Small and medium-sized enterprise. This term is often used generally to describe small independent businesses; however, there are specific criteria that a company must meet in order to be officially classified as an SME by the UK Government. These criteria are turnover, balance sheet, and the number of employees. ## The Government’s SME definition In the UK, there are two different SME definitions, which depend upon the purpose of that definition. For normal EU reporting, an SME is a company with fewer than 250 employees and either a turnover of less than €50 million or a balance sheet of less than €43 million. For the purposes of R&D, however, the criteria are different. An SME for R&D purposes is a company with fewer than 500 employees or a turnover of less than €100 million and a balance sheet of less than €86 million. The different definitions of SME can be compared below: | **Criteria** | **Number of employees** | **Turnover / Balance sheet total** | | --- | --- | --- | | For UK R&D Purposes | <500 | < €100 million / < €86 million | | For normal EU reporting | <250 | < €50 million / < €43 million | ### SME classification There are also three SME classifications, which is also dependent on a combination of turnover and balance sheet totals, with the total number of employees. While these distinctions exist, they are not relevant to a company’s R&D eligibility - each of the below will be treated as an SME for R&D purposes. | **Turnover / Balance sheet total** | **Number of employees** | **Classification** | | --- | --- | --- | | ≤ €100 million / < €86 million | <500 | Medium-sized business | | ≤ €20 million / < €20 million | <100 | Small business | | ≤ €4 million / < €4 million | <20 | Micro business | For normal EU reporting, the numbers listed in the above table are halved. ## Why the SME definition matters for R&D Tax Reliefs There are currently two separate R&D Tax Relief schemes in the UK. These are [SME and RDEC](https://blog.shorts.uk.com/difference-between-sme-and-rdec-schemes). While each of these schemes provides companies with a generous incentive to invest in innovative projects, there are notable differences between the two. When submitting an R&D Tax Relief claim, it is very important that you understand which of these schemes you qualify for, because the nature and amount of benefit will vary. - The SME scheme is worth around 21.5% of qualifying R&D costs* - The RDEC scheme is slightly less generous and is worth around 20% of qualifying costs** *For periods up to 31 March 2023 the R&D SME relief is increased to the previous 25% of qualifying R&D costs. **For periods up to 31 March 2023 RDEC is decreased to 13% (net 10.7%). | ### Important: The future of the SME scheme is unclear As of Q1 2023, the future of the SME and RDEC schemes is currently under review. HM Treasury and HMRC [propose moving to a single, simplified R&D Tax Relief scheme](https://blog.shorts.uk.com/consultation-moving-to-a-single-rd-tax-relief-scheme) from 1st April 2024. The outcome of this proposal may drastically change how the R&D Tax Relief schemes in the UK work. The information in this article is accurate as of January 2023. | | --- | ## Understand your eligibility Innovative SMEs can benefit enormously from R&D Tax Reliefs and, with several movements from within Whitehall in recent months, this generous relief may not be around forever in the same capacity. The first step is understanding your company’s eligibility. Our [free R&D Tax Reliefs Eligibility Checklist](https://info.shorts.uk.com/rd_tax_credits_eligibility_checklist) is a great starting point. For more tailored advice, please feel free to contact our team. R&D Tax Reliefs more broadly are set to change. Alterations to the scheme were proposed in December 2022 and, following a period of consultation, the first proposed changes will begin as soon as April 2023. [Read our guide: What is changing in R&D? R&D Draft Guidance from HMRC (Dec 2022)](https://blog.shorts.uk.com/rd-draft-guidance-from-hmrc-december-2022) ![author](https://blog.shorts.uk.com/hubfs/darryl.png) #### Darryl Hoy Darryl is the Technical Director of the Radius team. He is a specialist in Research & Development tax reliefs, having previously worked at HMRC as an R&D Tax Inspector. [View my articles](https://blog.shorts.uk.com/author/darryl-hoy) Tags: [RADIUS - R&D Tax Relief & Patent Box](https://blog.shorts.uk.com/topic/radius-rd-tax-relief-patent-box) Share this on - - - [Questions? Get in touch with us](https://www.shorts.uk.com/contact/) ###### Tax Saving Guide 2026-27 Written especially for entrepreneurs and owner-managed businesses, this guide is full of planning ideas and tax risks to avoid. [ Download now ](https://info.shorts.uk.com/en-gb/tax-saving-guide) ![Tax saving guide 2026-27](https://blog.shorts.uk.com/hs-fs/hubfs/Tax%20saving%20guide%202024.jpg?width=375&height=465&name=Tax%20saving%20guide%202024.jpg) ###### Related articles ##### [Spring Budget 2023 - R&D Tax Reliefs](https://blog.shorts.uk.com/spring-budget-2023-rd-tax-reliefs) ##### [SME Scheme: R&D Tax Reliefs](https://blog.shorts.uk.com/rd-tax-relief-for-smes) ##### [Research and Development and the Autumn Statement](https://blog.shorts.uk.com/research-and-development-and-the-autumn-statement) ##### [How R&D Tax Relief aids lockdown recovery](https://blog.shorts.uk.com/rd-tax-relief-lockdown-recovery) ###### Latest articles [A case of aggressive tax avoidance: Glasgow Rangers Football Club](https://blog.shorts.uk.com/aggressive-tax-avoidance-affect-you) [What is VAT? - Complete Guide (Updated for 2025/26)](https://blog.shorts.uk.com/what-is-vat) [Ashgate Hospice Sparkle Night Walk 2026](https://blog.shorts.uk.com/ashgate-hospice-sparkle-night-walk-2026) [Stocktaking guide for UK businesses](https://blog.shorts.uk.com/stocktaking-guide-for-uk-businesses) [Supporting the Chatsworth Cascade for future generations](https://blog.shorts.uk.com/supporting-the-chatsworth-cascade-for-future-generations) [Deal of the Year win at Insider Dealmakers Awards 2026](https://blog.shorts.uk.com/deal-of-the-year-win-at-insider-dealmakers-awards-2026) [Football shirt Wednesday: Backing England in style](https://blog.shorts.uk.com/football-shirt-wednesday-backing-england-in-style) [Understanding lifetime trusts: the basics](https://blog.shorts.uk.com/understanding-lifetime-trusts-the-basics) [Close company directors face new HMRC detail requirements in 2026](https://blog.shorts.uk.com/close-company-directors-face-new-hmrc-detail-requirements-in-2026) [Shorts advise Harris Irwin Architects on successful growth funding.](https://blog.shorts.uk.com/shorts-advise-harris-irwin-architects-on-successful-growth-funding) #### About Us Use this little footer to reinforce your message about who you are and why people love working with you. 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