Grants and R&D tax credits together: how to claim both without losing relief

You can have both, but the interaction is real

Receiving a grant does not stop you claiming R&D tax relief. It changes how the relief is calculated on the expenditure the grant supports, and the change can be significant enough that it is worth planning before the grant is accepted rather than discovered at the year end.

The principle is straightforward. Public money should not fund the same pound of R&D twice, so expenditure met by a subsidy is treated differently from expenditure you funded yourself.

What counts as subsidised expenditure

Subsidised expenditure is R&D spend met directly or indirectly by a grant, a subsidy or another person. A grant awarded specifically towards a defined project subsidises the costs of that project.

Importantly, it is the expenditure that is subsidised, not the company. Work outside the scope of the grant funded project, and the portion of project costs you fund yourself where the grant only covers part, are assessed on their own terms.

How the merged scheme changed the picture

Under the merged R&D expenditure credit scheme, which applies to accounting periods beginning on or after 1 April 2024, most companies claim a single above the line credit and grant funding no longer pushes a claim out of the main scheme in the way it once did under the old SME rules.

That is a meaningful improvement for grant recipients. Companies that previously saw a grant reduce the value of their claim sharply now usually claim across the whole qualifying project under one scheme.

Enhanced support for R&D intensive SMEs

Loss making, R&D intensive SMEs can access enhanced support, known as ERIS, which is more generous than the merged credit. Here subsidy still matters: the rules on subsidised expenditure sit within that regime, so grant funded costs need identifying and treating correctly.

If you are a loss making SME with a high proportion of spend on R&D and you also hold grant funding, this is exactly the situation where getting the split right between subsidised and unsubsidised expenditure changes the number materially.

State aid and de minimis

Some grants are awarded under a minimal financial assistance or de minimis allowance, which carries a cumulative cap across a rolling period. Because the tax credit itself is generally not treated as notified state aid, the old cliff edge is largely gone, but the allowance you use on the grant still affects what other subsidised support you can take.

Keep the award letter. It states the basis on which the grant was given, and that is the document your adviser needs when preparing the claim.

Practical sequencing

Separate the grant funded project from other R&D in your records from day one, including timesheets and cost codes. Reconstructing the split eighteen months later from memory is where value is lost.

Track the grant claim schedule and the corporation tax timetable side by side. Grant claims are quarterly in arrears against actual spend, while the tax claim is made with the corporation tax return, and the two need to tell a consistent story about the same costs.

Finally, model both before you accept the grant. For most companies a grant plus a correctly prepared tax claim beats a tax claim alone by a wide margin, but you want to know the combined position rather than assume it.

Where to go next

Our R&D tax hub sets out the claim types side by side and includes a calculator that models the effect of grant funding on a claim. If you hold a grant now, or are about to apply for one, a short entitlement review will show what the combined position looks like for your accounting period.