Funded Projects and Research and Development Tax Relief

24 August 2018

Research and development (“R & D”) tax relief is a government-sponsored relief to encourage companies to undertake innovative activities. Activities qualifying for R & D tax relief are those seeking to achieve an advance in science or technology through the resolution of scientific or technological uncertainty.

The R & D legislation acknowledges that although companies can receive external funding for an R&D project, they can still qualify for R&D tax relief.

Funding includes the following:

  • Grants

  • 3rd party funding e.g. monies received by a customer to undertake a specific R&D project

There are two R & D tax relief schemes: the SME scheme and the RDEC scheme (the SME scheme providing a greater amount of tax relief per pound of qualifying expenditure).  Large companies will claim R & D tax relief under the RDEC scheme.  However, a SME-sized company is not always eligible to claim under the SME scheme, for example where the R & D is funded.

For a SME-sized company, whether the qualifying R&D project falls under the SME scheme or the RDEC scheme is dependent on the type of funding received for the R & D project.

If the funding is not a Notified State Aid, only the qualifying expenditure subsidised will be eligible for relief under the RDEC scheme. However, any other non-subsidised qualifying expenditure for the same project will qualify for relief under the SME scheme. (Please note that De Minimis Aid is not classified as a Notified State Aid for these purposes.)

If a company receives a Notified State Aid grant for the R&D project, all qualifying expenditure of that project will qualify for relief under the RDEC scheme.

Trying to figure out whether a grant received is Notified State Aid or not can be hard to distinguish therefore a review of the documentation is required when preparing an R&D tax relief claim.

How AAB can help you:

  • Reviewing the funding documentation

  • Using our connections with grant funding providers where necessary to classify the funding

  • Working with you to prepare and submit claims to HM Revenue & Customs and deal with any resulting queries

For more information please contact Moira Kelly (moria.kelly@aab.uk) or your usual AAB contact.

To find out more about Moira and the Corporate Tax team, click here.

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