Can I claim R&D tax credits if I have received a grant?

Many businesses may worry that receiving a grant will prevent them from claiming R&D tax credits.

While a grant can affect how a claim is made, it does not automatically exclude a company from R&D tax relief.

If you work alongside clients who have received a grant or form of financial aid, it is imperative to understand how they can work alongside R&D tax relief.

How do grants and R&D tax relief work together?

Historically, under the SME R&D scheme, companies were not permitted to claim SME relief on expenditure that had already benefited from notified state aid.

This often meant that grant-funded costs had to be claimed under the less generous RDEC scheme instead.

Grants and R&D tax relief can now work seamlessly alongside each other if you understand the requirements of both.

Grants generally fall into four categories:

• Non-project-specific grants, which can be spent freely but still affect how related R&D costs are claimed
• Project-specified grants, where funding is tied to R&D activity
• De minimis aid, which is capped but treated differently from notified state aid
• Non-state-aid grants, such as privately funded grants

Businesses must clarify whether the grant received is classed as state aid and if it relates to a specific R&D project.

Each category carries different implications and incorrect classification can result in under-claiming or HMRC enquiries.

How can grants and R&D tax relief work together?

The introduction of the Merged RDEC scheme from April 2024 has simplified matters and allowed grants and R&D tax relief to work together more effectively.

As the merged scheme is not notified state aid, grant-funded R&D expenditure can now be included in a claim without automatic disqualification.

This creates an opportunity for businesses to maximise their funding across multiple routes.

Claiming qualifying R&D expenditure across your business can allow you to access funds that can be reinvested into further innovation and growth.

R&D expenditure can be deducted from taxable profits and used to calculate the value of a Corporation Tax reduction for profit-making companies and a cash credit for loss-making companies.

For R&D-intensive SMEs that are loss-making, you may qualify for enhanced relief under the ERIS scheme.

When using the ERIS scheme, the timing of grant applications can be important, given that it may impact the status of the business, so careful planning can help increase your potential for a more generous relief.

This is due to applications operating on an accounting period by accounting period basis, making it necessary to accurately track when grants were leveraged.

Additionally, for the ERIS scheme, businesses must accurately separate grant-funded and self-funded costs when grants and R&D relief overlap.

How to claim correctly?

Clear documentation is crucial for any R&D tax claim and cost allocation processes.

Any errors can lead to penalties, repayments or prolonged HMRC enquiries and we are here to help accountants support their clients when making an R&D claim.

We offer enquiry defence as a part of our standard services at no extra cost for any legitimate R&D tax relief claim.

We will defend the full qualifying value of the claim and offer support for your HMRC enquiry.

We can review grant classifications and ensure claims are compliant to help your client access the maximum relief possible.

Our team of R&D tax consultants are on hand to help companies benefit from both grants and R&D tax relief and unlock vital funding for innovation.

Speak to our team today for specialist R&D tax claim advice.

Adam Bointon

Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.