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Can I Claim Both a Grant and R&D Tax Relief?

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Can I Claim Both a Grant and R&D Tax Relief?

Can I Claim Both a Grant and R&D Tax Relief?

Understanding R&D Tax Relief

R&D tax relief allows businesses to reduce their tax liability or receive a cash credit in exchange for eligible research and development activities. In the UK, R&D tax relief primarily falls under two schemes:

  • SME R&D Tax Relief: Available to small and medium-sized enterprises (SMEs), offering enhanced deductions or cash repayments.

  • Research and Development Expenditure Credit (RDEC): Designed for large companies but also applicable to SMEs if they’ve received certain grants or subsidies.

How Grants Affect R&D Tax Relief

Grants can impact R&D tax relief eligibility depending on the source and nature of the funding:

  1. Notified State Aid Grants

    • These grants are considered State Aid and typically prevent an SME from claiming under the SME R&D tax scheme for the funded portion of the project.

    • However, the business can still claim under RDEC for the grant-funded costs, albeit at a lower benefit rate.

  2. Non-Notified State Aid Grants (De Minimis Aid)

    • These grants do not necessarily block SME R&D tax relief, meaning that an SME may still be able to claim under the SME scheme for the unfunded portion of the R&D costs.

  3. Non-Government Grants (e.g., EU Funding, Innovate UK)

    • If the grant is non-State Aid, the company can usually still claim SME R&D tax relief on self-funded costs and use RDEC for the grant-funded expenditure.

Claiming R&D Tax Relief Alongside a Grant

If your business has received a grant and wants to maximize R&D tax benefits, consider these key points:

  • Identify the grant type: Determine if it is Notified State Aid or non-State Aid.

  • Separate eligible costs: If only part of your project is funded by a grant, claim SME R&D tax relief on self-funded costs and use RDEC for the rest.

  • Consult an expert: Tax and grant interactions can be complex, so professional advice can help optimize claims.

Conclusion

Receiving a grant does not automatically exclude you from claiming R&D tax relief, but it does affect how and where you claim. Understanding the interplay between grants and tax incentives ensures your business maximizes its financial benefits while staying compliant with tax regulations. If you are unsure, speaking to an R&D tax specialist can help navigate the complexities and maximize your claim potential.