Grants and R&D tax relief: can you claim both?

Can a company receive a grant and claim R&D tax relief?

Yes. A company can often receive grant funding and claim UK R&D tax relief for the same wider innovation project. For accounting periods beginning on or after 1 April 2024, the old SME restriction for subsidised expenditure was not carried into the merged R&D expenditure credit. HMRC also states that Enhanced R&D Intensive Support has no restriction on subsidised expenditure.

That does not mean a grant makes every project cost eligible for tax relief. The company must still identify qualifying R&D activities and expenditure, apply the rules for contracted-out work, overseas activity and payment, and satisfy the conditions of the relevant tax-relief scheme. Accounting periods beginning before 1 April 2024 require a separate legacy analysis.

Is R&D tax relief the same as a grant?

No. A grant is funding awarded under the rules and agreement of a particular programme. R&D tax relief is claimed through the company’s Corporation Tax position after applying statutory tax rules. They may support the same commercial programme, but they have different eligibility tests, evidence, timescales and administrators.

Which R&D tax rules apply to the grant?

The accounting period’s start date is decisive. The current merged scheme and ERIS apply to accounting periods beginning on or after 1 April 2024. The former SME scheme and old RDEC apply to periods beginning before that date. A period ending after 1 April 2024 can therefore still be governed by the legacy rules if it began earlier.

Do not apply the current answer retrospectively to a legacy claim or amendment. Identify the accounting period, scheme and grant terms before calculating the qualifying expenditure.

How do grants affect merged RDEC?

Under the merged RDEC rules, receipt of a grant does not by itself reduce qualifying expenditure. A company with £100,000 of qualifying costs does not automatically reduce that figure to £60,000 merely because a £40,000 grant contributes to the project.

The company still needs to test each cost. The merged scheme changed which party can claim contracted-out R&D. Broadly, the customer can claim where it contracts out activities intended or contemplated as R&D; the contractor may claim in specified circumstances where the customer did not contract out R&D. A grant agreement, collaboration agreement or subcontract does not override these tax rules.

How do grants affect ERIS?

ERIS provides additional relief for eligible loss-making R&D-intensive SMEs. HMRC’s current manual expressly says there is no restriction on subsidised expenditure, so receipt of a grant does not automatically exclude funded costs.

However, the company must still meet the ERIS conditions for the relevant period, including the R&D intensity test and loss-making requirement. Qualifying expenditure for the intensity calculation follows detailed rules, and a one-year grace period can apply in appropriate cases. The grant award itself is not evidence that the company meets the tax intensity test.

What changed from the old SME scheme?

Under the legacy SME scheme, notified State Aid could prevent SME relief for the subsidised project, while other grants or subsidies generally restricted the SME expenditure to the extent funded. Depending on the facts, expenditure excluded from SME relief could potentially be considered under old RDEC.

The distinction between notified State Aid, de minimis support and other subsidies was therefore central to older claims. The funding body’s name or the word “grant” was not enough: the award letter, legal basis, eligible-cost schedule and project connection had to be reviewed.

Does the grant-funded project define the tax R&D project?

Not necessarily. A funding programme may define a project by commercial deliverables, work packages, partners and milestones. For tax purposes, the R&D project is identified by the advance in science or technology sought and the scientific or technological uncertainties addressed.

The tax project may cover only part of the funded programme, extend across several grant work packages or stop before the commercial project ends. Equally, a grant-funded work package may be commercially innovative but fall outside tax R&D because the work does not seek an advance in overall scientific or technological knowledge or capability.

1. 01
   Map the commercial programme

   Record the grant work packages, milestones, partners, eligible costs and funding period.

2. 02
   Define the tax advance

   State the scientific or technological baseline, advance sought and uncertainties that competent professionals could not readily resolve.

3. 03
   Set the R&D boundaries

   Separate directly contributing and qualifying indirect activities from routine delivery, market work and post-R&D production.

4. 04
   Reconcile the two views

   Show which grant tasks and costs fall inside the tax project and explain any difference rather than assuming the scopes match.

Which grant-funded costs can qualify?

Only expenditure within the statutory categories and connected to qualifying R&D activities can enter the claim. Under the current schemes, the main categories include staffing costs, externally provided workers, software, consumable items, data licences, cloud computing, payments to clinical-trial volunteers and qualifying contracted-out R&D. Detailed conditions and apportionment rules apply.

The current new schemes also impose a payment condition: otherwise qualifying expenditure must generally be paid within two years after the end of the accounting period to be brought into account. A grant reimbursement does not demonstrate that the supplier or worker was paid.

What about contracted-out R&D and collaborative projects?

Grant-funded programmes often involve universities, specialists, consortium members and connected companies. Under the post-April 2024 rules, entitlement cannot be decided only by asking which party paid the invoice. The contractual relationship and who intended or contemplated the relevant R&D are important.

Review the agreement before work begins where possible. Ambiguous work packages, intellectual-property clauses and responsibility for technical decisions can create a mismatch between the commercial funding structure and the tax position. Overseas contractor or externally provided worker costs are also subject to restrictions, with limited exceptions.

Does Northern Ireland change the answer?

Potentially. A company may elect into Northern Ireland ERIS for eligible Northern Ireland trading activity. HMRC treats that relief within a separate subsidy-control framework and requires information about de minimis aid. The company must monitor the applicable rolling three-year limit and the amount of relevant aid received by the single undertaking.

This is distinct from the general statement that ERIS has no restriction on subsidised expenditure. A Northern Ireland company, or a group with Northern Ireland activity, should check whether the ordinary UK ERIS rules or Northern Ireland ERIS apply and review other public support before making the claim.

A worked grant and R&D tax example

A UK company has an accounting period beginning 1 July 2025. It incurs and pays £100,000 of expenditure on an R&D project and receives a £40,000 grant toward the wider programme.

Incorrect shortcut£100,000 costs − £40,000 grant = £60,000 claim

Correct review sequence

Project expenditure	£100,000
Grant received	£40,000
Automatic subsidy deduction under merged RDEC or ERIS	None
Amount tested under the tax rules	£100,000
Amount entering the claim	The portion of that £100,000 that passes the activity, category, apportionment, contracting, location, payment and scheme tests.

The example does not say the company can claim on all £100,000, and it does not calculate the tax benefit. It shows only that the £40,000 grant is not automatically subtracted under the current subsidy rules. If the accounting period had begun before 1 April 2024, the legacy SME and State Aid analysis could change the result.

What evidence should the company retain?

A strong reconciliation explains differences between the funded budget, actual project spend, statutory qualifying expenditure and the final tax claim. It should not force the grant reporting categories to serve as a substitute for the tax analysis.

How should grant and tax planning be coordinated?

Review both routes before the grant application and again before signing collaboration or subcontracting agreements. This helps the company understand cash timing, ownership of the R&D, evidence responsibilities and the effect of alternative project structures. The funding application should remain accurate to the programme; the tax analysis should remain accurate to the legislation.

For help assessing the R&D claim alongside your funding, explore our UK R&D tax relief service.

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