R&D Tax Credits and Grants: why not both?
First off – congratulations on winning a grant for your business! This is great news, so well done. Now for the next step: ensuring that you are clued up about how to tie in R&D Tax Credits and grants to make the most of the funding available to you.
Can I claim for R&D Tax Credits if I have already received a grant?
Whether you can claim for R&D Tax Credits when you have already received a grant depends very much on the grant you have received. Whether you choose to consult with an R&D Tax Credits specialist (like us!), it’s probably worth getting an understanding of the factors that determine eligibility and how you best move forward.
First, there’s notified state aid.
At a glance: if the grant you received is notified state aid, you will not be able to claim R&D Tax Credits under the SME scheme for that project, but you can still claim R&D Tax Credits under the RDEC scheme. If the grants were of other forms other than notified state aid, your project will qualify for SME scheme for the portion of qualifying expenditure that exceeds the grant amount and you will also be able to claim RDEC scheme for the amount that is covered by the grant.
If the grant you have received is notified state aid, it disqualifies the project it applies to from claiming under the R&D Tax Credits SME scheme . State aid grants are grants that are funded by the state and are regulated by the EU under state aid rules to prevent an unfair advantage in the European single market. However, just because a grant is funded by the state, it does not automatically make it notified state aid; it depends on the grants and not just on the funding body.
For example, the UK R&D Tax Credits programme consists of two schemes: the SME scheme and the RDEC (formerly known as Large Company) scheme, and only the SME scheme falls within state aid rules. The SME scheme is much more generous than RDEC but has restrictions on the turnover, the number of employees, and whether it has received other grants.
We can help you find out whether your grant is a state aid, usually by way of requesting for your grants document and speaking with your grant funding body.
If the grant is confirmed to be notified state aid, your project will be disqualified from R&D Tax Credits SME scheme. It’s worth noting that it is the project that is disqualified, and not the company. So if you have multiple R&D projects, you may still claim for those not funded by notified state aid under the SME scheme.
Great news. It isn’t notified state aid. Now what?
If the grant you have received is not notified state aid, the received funds will likely fall within the subsidised expenditure category. An investigation on the purpose of the grant and the allocation of the grant funding will be necessary to determine the scheme(s) the R&D Tax Credit claim can operate.
We can end up with three different outcomes:
- RDEC claim
- SME claim
- a mixture of RDEC and SME claim
If the grant funds the whole of the project, we would advise you to file under the RDEC scheme, which will allow you to recover up to 8% of your development costs in additional to the grants you have received. This scheme only covers qualifying expenditure such as payroll costs and R&D consumable costs and does not include subcontracted expenses.
If the grant explicitly funds only the non R&D part of the project such as marketing and commercialisation expenses, then it doesn’t matter whether it is notified state aid or not and will not affect your R&D Tax Credits claim.
If the grant funds only a portion of the R&D project, you can claim a mixture of RDEC and SME, where the RDEC scheme applies to the amount of your R&D expenditure that has been grant funded, and the SME portion will apply the the remaining R&D expenditure.
Our team at GrantTree is very familiar with the complexities in this area. When in doubt, it is best to get advice from someone experienced with filing R&D claims, who understands how the awarding of grants can fit in around your R&D Tax Credits so you can make the most out of the funding available to you. Good luck!