R&D Tax Credits are a great way to obtain funding for your research and development activities as cash back from HMRC. However, many R&D intensive companies also rely on Government grants – such as those provided by Innovate UK – to fund their operations.
There are a few caveats to keep in mind when receiving both grants and R&D Tax Credits. However, they don’t necessarily prevent you from benefiting from both. With accurate planning and qualified advice you can easily arrange to make the most of R&D Tax Credits even when you’re receiving grants.
These are four of the most common misconceptions associated with Grants and R&D Tax Credits:
1. I can’t claim R&D Tax Credits if I already received a grant
Many Founders miss out on the opportunity to claim R&D Tax Credits because they think their grant jeopardises their eligibility for the scheme.
In reality, receiving a grant is actually a pretty good indicator that the operations the business is involved in may be considered as eligible R&D Activity.
What some grants could potentially affect is your ability to claim under the generous SME version of R&D Tax Credits, which allows you to claim up to 33% of your R&D spend. However, this is only true if the grants are considered as notified state aid and they are not project-specific.
In all other instances, you will likely be able to claim R&D Tax Credits under the SME scheme for at least a portion of your spend. But there is also the RDEC scheme, which is worth up to 10% of your spend and it’s not affected by grants.
2. Even very small grants will prevent me from claiming R&D Tax Credits
While it is true that most grants, big or small, will affect your eligibility, there is a very high chance that a relatively small grant may count as de minimis state aid.
A grant can qualify as de minimis aid when the company receives less than €200,000 across a three-year period. In this case, you will still be eligible to claim R&D Tax Credits under the SME Scheme for all your eligible R&D spend that is not covered by the grant.
3. If my grants are above the de minimis threshold, I can only claim R&D Tax Credits under RDEC
While this may be true, the key factor here is whether the grant you received was project-specific or not.
If grants are project-specific, they only affect the eligibility of the activities within the scope of the project they refer to. This means that the rest of your activities can still constitute eligible R&D spend under the SME Scheme, plus you can still claim under the RDEC for the project the grant was awarded to.
The good news in this is that most Innovate UK grants are project-specific!
4. European grants affect my eligibility for R&D Tax Credits
The opposite is actually true! Grants only affect your eligibility for R&D Tax Credits when they are considered “notified state aid”. By definition, grants provided by the EU, like Horizon 2020, are not state aid. Therefore, if you only received a grant from European Union, you can claim R&D Tax Credits for all of your eligible spend.