Grants and R&D Tax Credits: Can I claim both? 

Grants and R&D Tax Credits serve different purposes and have different criteria for eligibility. This means if your business is eligible, you can claim both simultaneously. Grants are typically awarded to organisations to fund specific projects or initiatives, while R&D Tax Credits provide financial incentives for businesses undertaking research and development activities.  

Unfortunately, it’s not as easy as simply applying for both. There are limitations and restrictions on how these two funding sources interact. In many cases, the government or funding organisation may require that any grant funding received be deducted from the eligible R&D expenses before claiming R&D Tax Credits. This ensures no double-dipping of funding and prevents you from receiving a tax credit on expenses already covered by grants.  

It’s also worth noting that your eligibility for claiming R&D Tax Credits after receiving grant funding can vary depending on your country or region’s specific regulations and guidelines. In some cases, you may be required to demonstrate that the grant funding was used exclusively for non-qualifying R&D activities before you can claim the tax credit on the remaining eligible expenses.  

If I receive a grant, will it affect my R&D tax credit claim?  

In the UK, receiving a grant can affect your R&D tax credit claim, depending on the grant and its application to your R&D activities. The UK government offers R&D tax credits to encourage innovation, which can be claimed by companies working on innovative projects in a wide range of sectors. However, the interaction between grants and R&D tax credits is nuanced and can be tricky to navigate without specialist advice, but let’s break it down; 
 

There are two main types of R&D tax relief schemes in the UK: 

Grants can affect R&D tax credits in the following ways;  

• Non-Notified State Aid Grants: These do not specifically preclude the company from claiming SME R&D tax credits for the project they fund. Thus, if a grant is classified as non-notified state aid, it’s possible to claim SME R&D tax credits for other costs associated with the project that the grant does not cover. 

• Notified State Aid Grants: If a grant is classified as notified state aid, it typically prevents the company from claiming SME R&D tax credits for the project it funds because a project can receive up to one form of state aid. However, you can still claim under the RDEC scheme for the expenditure the grant covers, which is less generous than the SME scheme. 

• Other Grants: Some grants are not considered state aid (e.g., certain local grants), and receiving these may not affect your ability to claim SME R&D tax credits, depending on the specifics of the grant and the R&D activities. 

To sum up, receiving a grant can impact the R & D tax credit claim under the SME scheme. However, you can still benefit from the RDEC scheme, which provides an alternative avenue for claiming R&D tax credits. 

Can I claim R&D Tax Credits for grant-funded projects?  

It’s a common misconception that you can’t claim R&D Tax Credits for grant-funded projects, but in some cases, you can. Whether you can claim depends on several factors, including the grant type and the project specifics. By effectively leveraging grant funding and R&D Tax Credits, you can significantly boost financial support for your research and development efforts. 

To optimise the benefits of both funding sources, it is crucial to consider the grants and their terms and conditions carefully. Understanding the specific requirements and limitations of the grant can help you identify opportunities to maximise your R&D Tax Relief claim. By aligning your R&D activities with the grant’s objectives and the eligibility criteria for R&D Tax Credits, you can claim the relief you are entitled to.  

Types of grants and how they impact your R&D tax relief include;

• Non-notifiable state aid: If your project receives a grant classified as non-notifiable, you cannot claim R&D tax credits under the SME scheme for any project costs covered by the grant. However, you may still be able to claim under the R&D Expenditure Credit (RDEC) scheme, albeit at a lower rate. 
• Notifiable state aid: If the grant is notifiable, the entire project may only be eligible under the RDEC scheme, not under the more generous SME R&D tax credit scheme. This is because a project cannot receive more than one form of state aid. 
• De Minimis Aid: Smaller grants that fall under the de minimis aid regulation may allow for a combination of claiming under the SME scheme for parts of the project not funded by the grant and the RDEC scheme for the grant-funded parts. 
• Other grants: For grants that do not constitute state aid, such as certain privately funded grants, it’s possible to claim under the SME scheme for grant-funded and non-grant-funded parts of the project. 

How does the timing of grants and R&D tax credits impact how much I receive? 

Timing is everything, and the extent to which it can impact how much R&D tax relief you receive underscores the importance of a proactive tax planning strategy. Whether you do this in-house or outsource to a specialist planning how you apply for and use grants in conjunction with R&D can maximise your funding. However, careful consideration of the types of grants, their conditions, and how they align with your R&D tax credit strategy is required. 

Receiving a grant classified as notified state aid before or during an R&D project can limit eligibility for SME R&D tax relief, potentially pushing the claim into the R&D Expenditure Credit (RDEC) category, which is less beneficial. This is because notified state aid cannot be combined with SME R&D relief for the same project costs. This means the type and timing of grants can significantly impact the tax relief strategy and overall financial benefit from R&D activities. 

What are the key considerations when applying for grants and R&D tax simultaneously? 

• Separating costs: It’s important to carefully allocate and separate the costs associated with grant-funded parts of the project and those that are not. This separation can maximise your claim across both the SME and RDEC schemes. 
• Documentation: Keep detailed records of project expenses, grant funding received, and the nature of the grants. This documentation will be crucial if HMRC queries your tax credit claim. 
• Professional advice: Given the complexities of claiming R&D tax credits, especially with the interplay of grants, it pays to ask an expert. A specialist can help navigate the rules and maximise your claim while ensuring compliance with HMRC guidelines.

Unlock the funds you’re entitled to 

As a pioneering business leading the way in your sector, the funds associated with a grant or R&D tax relief can have a huge impact on your future innovation and growth – especially if you can employ both!  

As you’ve just read, the rules and regulations around claiming grants and R&D Tax Credits can be complicated, which is why outsourcing to a specialist who knows tax law and regulations inside out can be a great investment. Wilby Jones will save you time, money and the inevitable frustration or coordinating a tax strategy. Let’s work together to secure your business the funds you’re entitled to.  

If you would like to know more about what we do, the way we do it, and why Wilby Jones might be the right partner for you, contact us today.