If you have applied for grant funding and received it, the probability is your business is doing well because of being innovative. Of course, getting any extra funds would always be welcome and of use since R&D can be rather expensive. Did you know that there also are additional sources of funding that you can benefit from? There still are quite many business owners that are not aware of certain funds that could be a help for your business. There is a mistaken notion that since your business receives grants you cannot benefit from other kinds of funds especially Research & Development tax benefits.
In this article we try to clarify about using R&D tax credits with grants. The bottom line is if you are eligible for R&D Credits do not hesitate in claiming them.
There are two kinds of R&D tax credit benefits:
An SME R&D tax credit plan that offers benefits up to 33p spent on qualifying expenses.
Research and Development Expenditure Credit (RDEC): It is up to 10p per pound spend on qualifying expenses.
While the qualifying criteria is different, naturally wherever possible you would want the better SME R&D tax credit. As per the EU regulations it is unfair for any business to receive notified state credit in addition with SME R&D tax credit. For the layman who is not well versed with the intricacies it can be quite confusing. This has led to the mistaken notion of a blanket ban existing on the combination of grants and R&D tax credits.
There are certain restrictions on SME & R&D tax credits but none on these on the RDEC (Research and Development Expenditure Credit). While there are various types of grants with some less impactful on R&D tax credit. If you opt for the right grant with correct documentation you may be able to utilise the SME incentive.
R&D tax credits and grants can work in the following manner:
Only claiming RDEC:
When you get the non-project-specific grant it is the least favourable It results in being kept out of the SME R&D tax credit benefits for the complete business. Although, you can still claim RDEC with a tax credit 10% of R&D expenses, which includes money from the grant.
Filing for some SME credits as well as RDEC:
This has brighter prospects where even though you have not got state aid, the grant is for a project. Consequently, the project funded by the grant qualifies under RDEC claims. Therefore, other R&D projects will come under SME incentives. It means dual benefits of 10% on qualifying expenses and 33% on the balance.
Heavy use of SME tax credits, topped up with RDEC:
The third is among the best. If you get a grant that is not qualify for state aid by the EU either because the EU issued the grant under “de minimis aid” or it is below a minimum value (€200,000 over 3years), you would be eligible to claim SME R&D tax credits. Only the grant funding will come through the RDEC.
These three give you a basic idea where there is confusion for R&D tax credits when receiving grants. However, if you engage a specialist, he will guide you through the nitty gritty and technicalities to benefit both from R&D tax credits and grants.