R&D Tax Credits Claim & Grants
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In this fast-growing and competitive business world, the innovative business might often need funding and grants to propel their projects forward and these grants are a very useful source to finance research and development projects. But later when it comes to claim R&D tax credits for the same research and development project, many companies hesitate due to a lack of understanding. A number of businesses do not make R&D claims due to this common misconception that grants restrict their access to R&D tax credits but thankfully it is not like that.
Receiving grants does not prevent you from claiming HMRC’s R&D Tax credits, but claiming them requires a complete understanding of both schemes and their relationship. The rest of this intends to unscramble complexities between the relationship of grants and R&D Tax Credits and also explain how you can get benefit from both of them.
First, let's discuss R&D tax credits & Grants in detail.
Both grants and R&D tax credits are financial help for the businesses investing in research and development. Grants and tax credits are cash boosts but there is little difference between them. Grants are up-front funding for research and development projects whereas R&D tax credits are to be claimed after you have started working on research and development, precisely after you have tried to execute what you have planned.
There is no compulsion to claim R&D tax credits for a successful project, you can even claim for failed research and development project. To meet the prerequisites of the R&D claim you should have invested in a research and development project in which you faced technical or scientific uncertainties.
Grants & Their Impact on R&D Tax Credits:
There are different types of grants offered by the UK government and EU, and each grant interacts with R&D tax credits distinctly.
• What is Notified State Aid?
Before looking into each case in-depth one thing that should be cleared is that what is notified state aid? Notified state aid s government’s funding which is regulated by the European Commission in accordance with state aid rules. These rules set limits of financial aid to maintain checks and balances. Under European Commission rules, the company cannot claim more than one type of notified state aid for the same project.
• R&D Tax Relief Schemes & Notified State Aid?
If we look at R&D tax relief schemes, SME R&D tax relief is classified as notified state aid, whereas research and development expenditure credit RDEC is not.
So, in accordance with EC rules if a company has already received notified state aid then its access to SME R&D tax relief will be ceased. Due to this limit even if you fall under the category of SME, you can still claim R&D Tax Relief via the RDEC scheme.
RDEC scheme is less generous than SME, as it only grants 13% relief on qualifying expenditure rather than 33% like SME R&D tax relief scheme.
1. Non-Project Specific Notified State Aid:
Non-project specific state aid grants are flexible in terms of which project it is for but it limits company’s access to SME scheme. So, if the company receives non-project-specific grants like Coronavirus Business Interruption Loan Scheme CBILS, then you become ineligible for making R&D tax relief via SME scheme, in that case, you have to claim R&D Tax Relief via RDEC scheme. You have to prove HMRC’s detailed investment of money on Research and development projects to claim for R&D tax credits. It is advised to keep a comprehensive record of all the R&D expenditures you have made.
2. Project Specific Notified State Aid
Project-specific grants are provided on the specific pre-agreed project, mentioned in your grant agreement. In most cases company received project-specific state aid for one project but also carrying out other eligible research and development projects and R&D tax credits can be claimed against those projects.
In cases where one project leads to another, this becomes ambiguous and complicated, you need to make a clear distinction for which project you are going to claim and under which scheme.
If things seem more complicated and unable to untangle then you best thing to do is consult R&D tax credit specialists.
3. De minimis state aid grant
De minimis aid is capped form of state aid, therefore does not have to be reported to the EC hence it is not considered as notified state aid.
The cap is set at €200,000 over three consecutive fiscal years. You have to claim de minimis aid funding for qualifying R&D projects via the RDEC scheme but it would not prevent the rest of your R&D expenditure from being considered under the SME R&D tax credit scheme up to 33%.
4. Non-State Aid Grants:
Non-state aid grants have a similar relationship with R&D tax credits as de minimis aid. The funding is to be claimed under RDEC but all other qualifying R&D expenditure can be claimed via the SME scheme. Non-state aid grants are very beneficial and have no limits to the value of the claim.
To maximise your grants and R&D Tax credits you can consult our R&D tax credits expert who can help you reclaim every possible penny you invested under the relevant scheme.