Can a Company Claim both R&D Tax Credits and Government Funding?
The short answer is yes. However, most claimants are under the impression that benefiting from both is not possible. There are two methods for claiming R&D tax credits. One under the SME scheme and the other is the Research and Development Experimental Credit (RDEC).
Assuming your company is classified as an SME, grants may affect your R&D tax credit claim. Depending entirely on the type of funding received.
Should the funding be utilised for any individual R&D project(s), the SME will be required to claim this project under the RDEC scheme. For any other remaining R&D projects where an SME elects not to allocate government specific funding to R&D project(s), these projects are able to be claimed under the SME scheme.
If the funding received is non-specific, the grant is considered basic funding and a company can utilise this for anything (i.e., hiring, marketing).
PRIMARY FUNDING CLASSIFICATIONS
Notified State Aid
This type of government funding, wholly or partly funded by a notified state aid grant, can not claim R&D project(s) under the SME scheme. Funding received from UK Innovate is a good example of this. An SME is still able to claim R&D Tax Relief but through RDEC, which is a less generous scheme.
Non-Specific Notified State Aid
This type of funding is non-project-specific where the funding is not connected to R&D projects. It is advisable to document this so you can demonstrate where the funding was spent. You do not want to be in a position when you submit an R&D claim where HMRC elects to review and determines your submission is an RDEC claim.
Project State Aid
This is a project specific grant application being submitted to a state aid body. When receiving confirmation of the letter involving the funding, the letter will make mention of the given project the funding is being received for. If the project is deemed an eligible R&D project, the project must be claimed under RDEC. However, this applies only to the project that you received funding for.
For example, if RDP determines you have 5 eligible projects and you received project state aid funding for 1 of the projects, you are still able to claim the other four projects under the SME scheme. In cases where funding is being provided to 1 R&D project and another R&D project follows directly from it, things can become complex. Where one piece of R&D starts and another ends is often unclear. So you need to show a clear separation of R&D projects. Especially if you are going to claim for one of the projects under a different scheme.
De minimis State Aid and/or Non-State Aid Funding
State aid funding classified as “De minimis” is deemed a form of state aid. Which is capped over a period of months or year and does not apply to notified state aid funding rules.
By rule, a company would have to claim RDEC from the de minimis aid funding only. You are able to claim your matched investment amounts under the SME. Non-state-aid grants also have the same rules as De minimis aid.
The rules regarding the interaction of receipt of government support measures and R&D tax credits can be quite complex. We have prepared over 10,000 R&D tax credit claims and can answer any questions on this matter.
Please get in touch with us if you have any further questions about how COVID-19 Government support measures may interact with and impact your R&D claim.