In Monitor Audio Limited v HMRC (2015) TC04541, the tribunal considered whether for purposes of the Research and Development (R&D) relief SME tests, whether a “partner enterprise” was an institutional investor.


Monitor Audio Limited designs and distributes loudspeakers. For the periods ending 30 September 2010 and 2011, it made R&D credit claims totalling £1.18 million, being 75% of analysed qualifying expenditure, the correct rate for Small and Medium Enterprises (SMEs).

HMRC refusal

  • HMRC refused to accept the claims because it said the company did not meet the definition of an SMA as defined by Commission Recommendation (EC) No 2003/361 (which has been adopted for UK purposes).
  • This recommendation states that in considering the size tests, a company must include the assets and employees of any ‘partner enterprises’, including shareholders with more than a 25% interest in the shares and voting rights, which are not institutional investors or a venture capital company.
  • An investment company, West Register, owned 43.75% of the shares and 26.22% of voting rights. This company is a subsidiary of RBS, and this (according to HMRC) meant that Monitor Audio failed the SME test.
  • The appellants claimed that West Register is an institutional investor, being “an organisation, for example a bank or an insurance company, that invests in something”. West Register held its investments on behalf of a large number of individual investors.


  • The tribunal agreed with the appellant that the term institutional investor could apply to an investment bank, as it is not defined anywhere within the recommendation and so should be given its broader ordinary meaning, and not the more restrictive interpretation relied on by HMRC.
  • HMRC was wrong to treat its own definition as a definitive one. The company met the definition of an SME in both periods, and therefore was entitled to claim the 75% credit as it originally had.


Case decision Monitor Audio Limited v HMRC (2015) TC04541

Guidance: A Practical Tax Guide to R & D Relief