Commentary on Sections Glossary Structure of Part 2 Sections 47 to 49: Expenditure of small or medium-sized enterprises
235.These three sections are based on sections 22A and 22AA of CAA 1990. They set out how to decide if a company or other business is a small or medium-sized enterprise for the purposes of the legislation for first-year qualifying expenditure.
236.Section 47 deals with expenditure by companies. As in other sections, the reference to the companies legislation avoids duplication in this Act and makes clear the tests are precisely the same. For ease of reference here the Companies Act 1985 provides:
Section 247: Qualification of company as small or medium-sized
“(1)A company qualifies as small or medium-sized in relation to a financial year if the qualifying conditions are met—(a)in the case of the company’s first financial year, in that year, and(b)in the case of any subsequent financial year, in that year and the preceding year.(2)A company shall be treated as qualifying as small or medium-sized in relation to a financial year—(a)if it so qualified in relation to the previous financial year under subsection (1) above or was treated as so qualifying under paragraph (b) below; or(b)if it was treated as so qualifying in relation to the previous year by virtue of paragraph (a) and the qualifying conditions are met in the year in question.(3)The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements—Small company1 TurnoverNot more than £2.8 million2 Balance sheet totalNot more than £1.4 million3 Number of employeesNot more than 50Medium-sized company1 TurnoverNot more than £11.2 million2 Balance sheet totalNot more than £5.6 million3 Number of employeesNot more than 250.”
237.These limits can be changed by statutory instrument. The last change was in 1992.
238.The same tests are used in the Companies (Northern Ireland) Order 1986.
239.Subsections (2)(b) and (3)(b) stop companies qualifying as small or medium-sized if they are members of a larger group. See section 49.
240.Section 48 deals with expenditure by businesses which are not companies. The test is broadly whether the business would be a small or medium-sized company if the qualifying activity were carried on by a company. This is done by looking at whether or not a hypothetical company would be small or medium-sized.
241.Subsection (2) applies the section to businesses carried on by individuals and to others that are not companies and so would otherwise not be able to have first-year qualifying expenditure.
242.Subsection (5) sets the assumptions for the hypothetical company which is used to decide if the business is small or medium-sized. These include the assumption that every trade, business, profession or vocation carried on by the business is carried on by the business as part of that activity. This is broadly equivalent to the requirement in section 47(2)(b) that a company is not a member of a large group.
243.Subsections (6) and (7) then use the relevant companies legislation to decide if the hypothetical company is small or medium-sized.
244.Subsections (8) and (9) decide the relevant companies legislation for this purpose. They make minor changes to make clear whether the Companies Act or the Northern Ireland legislation should be used for this purpose. The difference does not matter in practice as the legislation is very similar. See Change 7 in Annex 1.
245.Section 49 decides if a company is a member of a large or medium-sized group for the purposes of section 47.
246.Subsection (4) treats as large or medium-sized a company which is not but would be if arrangements which already exist would make it, or a successor to its trade, large or medium-sized.
247.Subsections (5) and (6) apply the relevant companies legislation.
Section 249(3) Companies Act 1985
“(3)The qualifying conditions are met by a group in a year in which it satisfies two or more of the following requirements—Small group1. Aggregate turnoverNot more than £2.8 million net (or £3.36 million gross)2. Aggregate balance sheet totalNot more than £1.4 million net (or £1.68 million gross)3. Aggregate number of employeesNot more than 50Medium sized group1. Aggregate turnoverNot more than £11.2 million net (or £13.44 million gross)2. Aggregate balance sheet totalNot more than £5.6 million net (or £6.72 million gross)3. Aggregate number of employeesNot more than 250.”
248.These limits can be changed by statutory instrument. The last change was in 1992.