As companies continue to identify new funding streams, they rarely stop to think about how it might affect their existing funding streams, i.e. their annual Research & Development (R&D) tax credit claim. Grant funding can be used alongside R&D relief, but the rules are complex, and it can be tricky to navigate for business owners.
There are two separate R&D schemes through which you can claim Corporation Tax relief: SME R&D Relief for small and medium sized companies and Research and Development Expenditure Credit (RDEC) for larger companies. The majority of businesses apply under the former scheme, given that businesses are eligible up to a turnover of €100m.
Complexities surround whether funding acts as a type of state aid, as there are limits on the amount of state aid a business can receive. An SME R&D tax credit is a form of EU state aid, whereas an RDEC tax credit is not. Grants can also constitute EU state aid, for example, grants from Innovate UK or The Regional Growth Fund (RGF). Where a company receives a notifiable EU grant to directly assist with an R&D project it immediately disqualifies the project from falling under the SME scheme. This is a problem, as the SME scheme provides far greater tax relief than the RDEC.
Businesses should consider carefully the interaction between government grants and R&D tax relief and weigh up the benefits of each before committing to funding.
To discuss your funding planning, contact our lead R&D tax advisor, David Herd, on david.herd@championgroup.co.uk or 0161 703 2500.
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