Can you claim R&D tax relief on grant-funded projects?

The old rule founders still believe

Many UK founders and finance directors still assume that accepting a grant reduces or removes their right to claim R&D tax relief on the same project. That was true under older schemes, where subsidised expenditure had to be carved out and could attract a lower rate of relief.

The current rules are different. Under the merged R&D expenditure credit scheme and Enhanced R&D Intensive Support, grant funding is largely irrelevant to whether you can claim R&D tax relief. The result is that grant-funded innovation can often attract both public funding and a meaningful tax credit.

How the merged scheme treats grant funding

Under the merged R&D scheme, the 20% above-the-line expenditure credit is calculated on qualifying expenditure regardless of how the project was funded. There is no subsidy penalty and no requirement to separate grant-funded costs from privately funded costs.

You do not need to track a subsidised proportion or manage complex project boundaries between public funding and tax incentives. Signing a grant offer letter no longer impacts or downgrades your baseline tax position for ongoing innovative work.

This makes compliance simpler. If the work resolves technical uncertainty and meets the other R&D qualifying conditions, the full qualifying spend is in scope for relief, even where a grant is paying part of the bill.

How ERIS treats grant funding

Enhanced R&D Intensive Support, or ERIS, gives loss-making, R&D-intensive SMEs a higher level of support. Grant funding does not block or reduce ERIS relief either. The old restrictions on subsidised expenditure have been abolished.

Businesses can accept Innovate UK or other public and private grants and still claim R&D tax relief on 100% of the qualifying spend for that project. The grant and the tax relief operate independently, provided the underlying costs are genuinely qualifying R&D expenditure.

The one exception is for companies registered in Northern Ireland that claim ERIS. A de minimis state aid limit applies, but this exists independently of whether the company holds a grant. Northern Ireland companies should check their specific position, but the presence of a grant is not the trigger.

What this means for your next claim

If you are running an innovative project that has received grant support, do not assume the grant removes your R&D tax relief. The qualifying staff, subcontractor, software, consumable and other eligible costs can still go into your R&D claim.

The key is to keep good records that connect the costs to the technical uncertainty you are resolving. The same project documentation that supports your grant application, technical reports and timesheets, will usually support your R&D tax relief claim too.

You can use our R&D tax relief calculator to get a quick estimate of what the merged scheme or ERIS might be worth for your qualifying spend.

When to get advice

The interaction between grant funding, state aid rules and R&D tax relief can still trip companies up, especially in Northern Ireland, in group structures, or where a grant comes with specific IP or commercial conditions.

Our R&D tax team reviews the grant terms, the project boundaries and the cost allocation to make sure you claim everything you are entitled to without overreaching. If you would like a free funding-fit review, book a consultation and we will look at both your grant pipeline and your R&D tax position together.