Claiming Grants & Tax Rebates
It is a common misconception that r&d tax credits and business grants cannot be used together. This is entirely incorrect, and many businesses, both SMEs and large companies, can claim for both.
While you might be entitled to both, it is worth bearing in mind that the amount you receive via a grant can impact how much r&d tax credit you are entitled to, so it is vital you know what to apply for and how to maximise both the grant and tax relief you are eligible for.
Grant applications usually come before applying for r&d tax credits, so knowing all the implications before proceeding with your grant can help you boost your grant funding and aid r&d claims.
How R&D Tax Credits Are Affected By Grants
There are four ways in which your tax credits can be affected by receiving a grant;
1. Notified state aid: Non-project-specific grant – Non-project-specific notified state aid grants are not compatible with the SME scheme.
The financing is provided to your company as a whole, not a specific project.
2. Notified state aid: Project-specific grant – This is the project you proposed in your grant application. Most innovation grants are project-based.
3. De Minimis state aid grant – De minimis aid is capped state aid that does not have to be notified to the European Commission. De minimis grants are therefore not disclosed state aid.
4. Non-state-aid grant – Non-state grants are viewed as de minimis aid. It must be claimed under RDEC, although any other qualified investment can be claimed under SME.
Each one comes with implications affecting what your company can claim regarding grants and r&d tax.
SME and RDEC
One of the two R&D Tax Relief programmes, SME R&D Tax Relief, is notified state aid. Research and Development Expenditure Credit (RDEC) is an alternative.
The European Union prohibits enterprises from receiving more than one notified state help for the same development project.
If a state aid grant partially supported your SME R&D Tax Relief project, you can’t claim it. A grant from Innovate UK would be an example of this.
R&D Tax Relief through RDEC is still available for projects partially or entirely supported by a notified state aid grant, which is good news.
On the downside, RDEC only offers 10% reimbursement on qualified expenditures, while the SME programme offers up to 33% relief on eligible expenses.
To preempt any issues, you should be aware of all the nuances of your r&d tax credits and the grant you are applying for to get the most benefit possible.
What Activities Qualify for R&D?
To qualify for r&d tax credits, your company must be pursuing research and innovation in products or services. This can be developing new technological advances, bringing new products to the market or developing new services to aid others. This can also include modifying existing products or services to improve them.
If your project team faced uncertain outcomes at the start of the project, a helpful test to see if the work done qualifies as R&D.
As a result, you and your team didn’t know if a specific goal was possible from the start.
Your idea may be eligible for funding if you can demonstrate that it goes beyond just utilising existing technologies.