Grants & Subsidies: How they affect your R&D Tax Relief claim

May 27, 2026

By Malcolm Henderson, Compliance Director

You may be thinking that, with the introduction of the R&D Merged Scheme for accounting periods beginning on or after 1 April 2024, grants and subsidies are no longer a key consideration.

However, that is not quite the case.

While their potential impact will reduce over time, grants and subsidies cannot yet be ignored.

Where Grants and Subsidies May Still Have an Impact

Grants and subsidies may still affect:

  • SME claims made within the two-year claim window, up to February 2027
  • HMRC enquiries involving historic R&D claims and grant funding
  • Northern Ireland registered claimants, where the position remains more complex
  • ERIS claims are not generally impacted, although Northern Ireland should still be considered as noted above

The Three Types of Subsidy

There are three main types of subsidy to be aware of:

  • Notified State Aid
  • General Block Exemption Regulations (GBER)
  • De Minimis Aid

The first two categories would move projects that would previously have fallen under the “old” SME Scheme into RDEC instead.

The third category would reduce qualifying SME expenditure on a pound-for-pound basis, with the reduced amount moving into RDEC.

For example, an SME with R&D expenditure of £100,000 and a £40,000 De Minimis Grant would have a £60,000 SME claim and a £40,000 RDEC claim.

Most grants you are likely to encounter will come from Innovate UK, the Scottish Government or the Welsh Government. Innovate UK and Welsh Government grants will almost certainly constitute State Aid, while Scottish Government grants can vary.

There will also be numerous other grant providers to consider.

COVID grants are unlikely to have an impact, mainly because of the passage of time and because most were considered not to affect R&D tax relief claims.

HMRC’s Position on Subsidised Expenditure

HMRC previously took the view that, if a company was paid for the work, this counted as a subsidy. Even after losing at First-tier Tribunal in Quinn (London), Stage One and Collins Construction, HMRC maintained that its interpretation was correct, although it ultimately conceded.

If HMRC was so confident in its position, why did it not appeal? One possible reason is judicial comity. This means that a judge at the next level of tribunal, where a precedent could be set, may be reluctant to overturn a colleague’s earlier judgment.

The relevant guidance was previously found at CIRD81650 and CIRD81670. CIRD81670 has recently been updated and suggests that State Aid grants have become less common since Brexit, although there still appears to be a degree of confusion in this area.

The original legislation was set out at S1138, CTA 2009.

What Should Businesses Do?

When engaging with a client, it is still important to ask whether they have received any grant funding. A copy of the grant letter from the payer should also be obtained, whether the claim is being made under the SME Scheme or the Merged Scheme.

Even under the Merged Scheme, this remains good practice, particularly while the position continues to develop.

It is also worth noting that the post-Brexit Subsidy Control Act was introduced in 2022.

How Bonham & Brook Can Help

Grants and subsidies can have a significant impact on your R&D tax relief position, and the rules are more nuanced than many businesses realise.

At Bonham & Brook, our specialists can help you identify whether any grant funding your business has received affects the scheme under which your R&D expenditure should be claimed. Where historic claims may have been incorrectly structured, we can also support retrospective correction before HMRC raises the issue first.

If your business has received grant funding alongside R&D activity, now is the time to make sure your claim reflects that correctly.

Next Steps  

Get in touch with Bonham & Brook’s Compliance Team to begin your assessment today. For expert support in navigating these complexities, contact us here.

 

Malcolm Henderson

Compliance Director

 

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