Assuming your company is classified as an SME, grants may affect your Research & Development (R&D) Tax Credit claim depending entirely on the type of funding received.
There are two methods for claiming R&D tax credits, one under the SME scheme and the other is the Research and Development Expenditure Credit (RDEC).
If funding is utilised for a single R&D project, the SME will be required to claim under the RDEC scheme. For any other remaining R&D project where an SME elects not to allocate government specific funding to a specific project, these are able to be claimed under the SME scheme.
If funding is non-specific, the grant is considered basic funding and the company can utilise this for anything (i.e., hiring, marketing).
Primary Funding Classifications
Notified State Aid
This type of government funding, wholly or partly funded by a notified state aid grant, can not claim R&D funding under the SME scheme. Funding received from UK Innovate is a good example of this. An SME is still able to claim R&D Tax Relief but through RDEC.
Non-Specific Notified State Aid
This type of funding is non-project-specific, the funding is not connected to R&D projects. It is advisable to document this in case you need to demonstrate where the funding was spent. You do not want to submit an R&D claim where HMRC elects to review and determines your submission is an RDEC claim.
Project State Aid
This is a project specific grant, submitted to a state aid body. When receiving confirmation of the funding, it will mention the given project the funding is being received for. If the project is deemed an eligible R&D project, it will need to be claimed under RDEC. This applies only to the project you received funding for.
De minimis State Aid and/or Non-State Aid Funding
State aid funding classed as “De minimis” is deemed a form of state aid which is capped over a period of months or year and does not apply to notified state aid funding rules.
A company would have to claim RDEC from the De minimis aid funding only. You are able to claim your matched investment amounts under the SME. Non-state-aid grants also have the same rules as De minimis aid.
The rules around R&D and government support measures are quite complex. Our tax department are able to advise on your claim and can also provide protection on defending an enquiry from HMRC, so long as the claim is completed by us.
Book a FREE appointment with our Tax team here.