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DNAe Group Holdings – Higher R&D relief claims available

29 September 2021

In DNAe Group Holdings Ltd v HMRC [2021] TC/201804348, the First-tier Tribunal (FTT) held that 125% research and development (R&D) tax credits for an SME was available, despite the company being the strategic investment vehicle of a larger group.


DNAe Group Holdings Ltd (DNAe) is a research and development company specialising in DNA gene sequencing. Its parent company, Edith Grove Ltd (EGL), is an indirect subsidiary of Genting Berhad Ltd (GB).  EGL was incorporated in 2008 in order to make an investment in DNAe. Throughout the relevant period, EGL owned more than 25% of the issued share capital of DNAe. 

In the accounting periods ending December 2010-12, DNAe claimed higher rates of corporation tax credits for R&D expenditure which are available to small or medium sized companies (SMEs) under section 1044, Corporation Tax Act 2009 (CTA 2009). HMRC enquired into the claims and, in December 2017, issued DNAe with three closure notices in respect of the above accounting periods.

The closure notices were issued on the basis that EGL's stake in DNAe precluded it from qualifying as an SME. The meaning of an SME, for the purposes of section 1044, is defined in Commission Recommendation (EC) No 2003/361 (the Commission Recommendation). Under the Commission Recommendation, where a company has "partner enterprises" holding more than 25% of its share capital, the accounts of those enterprises must be taken into account when determining whether it is an SME. However, venture capital companies holding more than 25% of the share capital are exempt from this requirement.  

It was HMRC's view that EGL was a partner enterprise of DNAe, rather than a venture capital company, and its accounts should therefore be taken into account. On this analysis, DNAe would only be entitled to the lower rate of tax credits under section 1097, CTA 2009, which are applicable to larger companies. 

DNAe appealed the closure notices to the FTT.

FTT decision

The appeal was allowed. 

In determining whether EGL was a venture capital company, the FTT considered Pyreos Ltd v HMRC [2015] UKFTT 0123 (TC) and Monitor Audio Ltd v HMRC [2015] UKFTT 0357 (TC), along with HMRC's own guidance. 

The FTT considered the following criteria:

1. whether the investment was speculative or high-risk in nature;  

2. the term of investment, the exit strategy, and any future funding obligations of the company; 

3. the level of involvement the company had with day-to-day company management; and

4. whether there was board representation. 

HMRC submitted that EGL had invested in DNAe in order to strategically benefit its parent company, GB, and this was not characteristic of a venture capital company. 

The FTT agreed with HMRC that a strategic investment would not be characteristic of a venture capital company. However, the strategic benefit was not considered to be the main purpose of EGL's investment in DNAe, it was merely ancillary. EGL was therefore a venture capital company in line with the above criteria and DNAe could claim the higher rate of tax credit. 


Whilst the FTT set out criteria that could be considered in determining whether a company qualified as a venture capital company, it stressed that the criteria referred to should not be used as a 'tick box' exercise in other cases. The circumstances of a company's investment will therefore need to be carefully considered in each case. 

Companies that have received investment from venture capital vehicles forming part of a larger group and who have claimed relief at the lower rate (following HMRC's guidance in relation to strategic benefit in paragraph CIRD92100 in its Corporate Intangibles Research and Development Manual) may wish to consider whether any additional relief is available.

The decision can be viewed here.

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