Claiming for research and development tax credits can bring much needed financial relief back into your business, but knowing whether you qualify for them can be tricky. In fact, so many companies are either unaware of their eligibility to claim, or unsure of how to do so, that as many as 90% don’t receive the tax relief that they’re due at all.
Some businesses prefer to use grants for the immediate financial aid, but deciding which is more valuable to your company can be difficult, particularly at the outset of a project. So what are the key things you need to know about grants and how they work alongside research and development tax credits?
Grants and R&D tax credits
The SME scheme for claiming tax relief is open to businesses of under 500 employees that fall beneath the defined limits for turnover or balance sheet totals. It is classified as a ‘notifiable State Aid’, which means that if your business has already received a State Aid grant for a qualifying project, it won’t be eligible for R&D tax credits under the scheme.
It’s important to note, however, that in such cases it is not the business that is ineligible for the relief, just the particular project, so future activities that don’t receive a State Aid grant can be claimed for.
Other grants, such as Horizon 2020 and the Seventh Framework Programme (FP7) can be used alongside a research and development tax relief claim as they are not considered to distort competition. The value of the subsidy that is used against R&D projects, however, must be removed from an R&D claim under the SME scheme and handled under the RDEC scheme.
Which to use
Unfortunately, there is no central source that details which grants can work alongside R&D tax credits and which cannot. The best way to ensure your business gets valuable funding, then, is to liaise with a tax specialist who can provide guidance on which schemes are best for you.
First, if your business falls under the RDEC scheme (i.e. has over 500 employees or an annual turnover of €100m or more), a grant won’t affect your ability to claim. If, however, you fall under the SME scheme, it will. Considerations such as whether you need upfront financial support (a grant) or want to claim retrospectively (R&D tax credits) will affect your decision.
Second, sourcing funding that has less impact on an R&D tax relief claim can help to ensure you get the most financial benefit possible. As mentioned above, a scheme such as Horizon 2020 has minimal effect on your claim for tax credits, so can be a good one to try. The de minimis grant is also an option that can be used with tax credits, providing your business receives no more than €200,000 across a three-year period. It’s worth noting that this limit may change or be removed following Britain’s exit from the EU.
Speaking to a specialist R&D tax advisor is the best way to ascertain whether any funding your organisation has received in relation to an R&D project has an impact on claiming for R&D tax relief.