The Impact of Grants on  R&D Tax Relief

Grants can provide essential funding for innovative UK businesses however, they have also historically significantly affected a company’s ability to claim R&D tax relief under various schemes.

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Old SME Scheme

In the old SME scheme if your R&D project was in receipt of a grant, the grant funded portion of the project had to be claimed under the less generous RDEC scheme, if the grant was a notified state aid the entire project was pushed into RDEC. This is because the old SME scheme itself is a notified state aid and more than one notified state aid was not allowed to be claimed on the same project. This often meant that SMEs may have been better off not taking a grant and rather just applying for R&D tax relief. However, it was challenging to identify situations where this might be the case before the fact meaning that SMEs often ended up in a sub-optimal position.

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Old RDEC Scheme

In the old RDEC scheme if an R&D project receives a grant or subsidy  it does not affect the RDEC claim.

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Merged Scheme

The merged scheme follows the same rules as the old RDEC scheme meaning that any grant or subsidy does not affect the ability to claim under the scheme.

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Enhanced R&D Intensive Support (ERIS) Scheme

As with the merged scheme, in the ERIS scheme any grant or subsidy does not affect the ability to claim under the scheme.

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Summary

The treatment of grants in R&D tax relief has become more favourable under the new Merged and ERIS schemes. However, care still needs to be taken when grants are received, especially with retrospective claims.

If your company has received grant funding and is unsure about how this affects your R&D tax relief position , please get in touch. The classification of a grant and how it relates to your R&D project can materially impact the value of your claim.

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