Claims for grant funded R&D projects

Many companies do not pursue R&D tax relief claims as they are under the impression that the government grants, they have received, prevent them from doing so.

However, the receipt of government grants does not mean that a company is completely restricted from the benefits of R&D tax relief. This only means in general that the company will be required to provide additional detail on the R&D claim as an appropriate apportionment of how much of the qualifying projects are grant funded. The backing of government support is actually a good sign that the activities being undertaken by the company are likely to be qualifying for R&D tax relief.

The restriction on grant funded R&D projects is only relevant to companies who qualify as an SME. Large companies who claim though the RDEC scheme will claim all of their qualifying costs through RDEC as usual.

As R&D tax relief claims are typically made up of a number of qualifying projects, it would be necessary to split the relevant qualifying costs into which projects were grant funded and which were non grant funded.

Following this, the grant funded costs would receive tax relief under the RDEC scheme and the non-grant funded costs would receive R&D tax relief under the usual SME claim.

However, before any claim is made for R&D tax relief, consideration should be given to which of the categories below apply to the grants received by the company as this will have a bearing on the cost apportionment of the claims. Grant funded R&D projects would generally fall into one of four categories:

  • Notified state aid – Non project specific grant
  • Notified state aid – Project specific grant
  • De Minimis state aid grant.
  • Non state aid grant

Whether a grant is classed as “notified state aid” depends if the funding is regulated by the European Commission, in line with state aid rules.

Non-state aid grants are typically provided by the European Union or by private companies, neither of which count as states.

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