R&D tax credits and grants: how to maximise relief

Grants are an essential tool for growing a business, but did you know that by receiving a grant, it can restrict your company’s ability to claim further Research & Development (R&D) tax reliefs and incentives?
There’s a myth that if a company receives a grant, it cannot claim R&D Tax relief. While this is untrue, receiving a grant can throw a spanner in the works.

In a bid to guarantee a level playing field for European businesses, the European Commission restricts one notified State Aid per project. While we’ve now left the EU, rules remain in place that mean that if the company has already received notified State Aid for a project, the project will not qualify for tax relief under the R&D SME scheme.

Any projects that have been in receipt of notified State Aid will instead fall into the less beneficial RDEC scheme, claiming 15p to the pound, rather than 27p for R&D intensive companies.

Unfortunately, it’s not possible to repay the notified State Aid. Once received, the project is automatically excluded from claiming R&D tax relief under the SME scheme for the entire length of the project.
There are, however, some things that you can do to avoid any potential pitfalls. By following the tips below, it’s possible to maximise your claim by combining both grants and R&D tax relief:

Know what type of grant you are applying for – firstly, not all grants are classed as notified State Aid. As such, not all grants will qualify for the less advantageous RDEC scheme. De-Minimis Aid, which offers up to €200,000 worth of funding, is not classed as notified State Aid, so this won’t force the project into the RDEC scheme. In this case, it’s possible to split relief over the two schemes: subsidised expenditure will fall under the RDEC scheme, while the remaining unfunded expenditure will qualify under the SME scheme.

Determine what project the grant relates to – the rules apply on a project-by-project basis, not on the total R&D work undertaken in the year. If you’ve received notified State Aid in relation to one project, this does not affect your ability to claim under the SME scheme for any remaining projects. Likewise, if you’ve received notified State Aid in relation to non-R&D activities, this won’t affect your SME claim.

Look at the long-term implications – remember, once you’ve received notified State Aid in relation to a project, that’s it – there is no way back. Try to consider the long-term implication of receiving the grant, and how it will affect future claims. Taking a small £10,000 grant at the early stages of a R&D project may help cashflow in the short-term, however, this could also affect your ability to claim R&D tax relief in future years.

Speak to people who know R&D tax relief – R&D tax relief is an ever-changing, complex area of legislation, and it really does pay to speak to an expert to ensure that you are maximising your claim, and planning ahead to avoid any potential pitfalls. A quick chat at the beginning of a project can provide you with a clear and proactive action plan, leaving you with more time to run your business!

If you have any queries about R&D tax relief, Notified State Aid or De-Minimis State Aid related to investment, contact Dave Philp.