Can you claim R&D tax relief and grants together?
Yes, in many cases. Under the merged R&D tax relief scheme (and ERIS), the old “subsidised expenditure” reduction rules from the historic SME scheme were not carried forward, so receiving a grant that covers part of your R&D costs does not automatically reduce the relief you can claim.
That said, grants still affect your overall tax position, your evidence trail and sometimes who is allowed to claim where work is contracted out. So the “yes” comes with some practical caveats.
The historic rules
Historically, the old SME scheme had complex restrictions around subsidised expenditure, including different treatment where a project was funded by notified State Aid or where costs were otherwise met by someone else.
Those legacy rules still matter if you are amending or reviewing pre 1 April 2024 accounting periods, but they are not the starting point for most current claims.
What changed to R&D tax relief?
For accounting periods on or after 1 April 2024, the UK moved away from having two main R&D routes with different outcomes depending on SME status and whether costs were subsidised. The reform brought most companies into a single merged scheme, with ERIS available for some R&D-intensive loss-making SMEs. One practical impact is that older guidance about grants “blocking” relief is often out of date, because the rules that used to reduce or restrict relief on subsidised expenditure have been changed.
Merged scheme
The subsidised expenditure rules from the SME scheme were not carried into the merged scheme, meaning relief is not reduced just because a grant covered part of the R&D costs.
ERIS
HMRC’s ERIS guidance also confirms there is no restriction on subsidised expenditure under ERIS.
So the practical question is usually not “will a grant block my claim?” but “how do I evidence the costs and keep the story consistent?”
How to assess a grants impact on your R&D claim
1) What exactly is the grant paying for?
Read the award letter and the budget headings. Some grants fund:
- Eligible project costs (staff, consumables, software, subcontractors)
- Capital items (equipment, buildings)
- Wider business activity (commercialisation, market deployment, training)
R&D tax relief only applies to qualifying R&D expenditure categories and only for costs you have actually incurred within the period and project boundaries you are claiming for.
2) Is it a grant, a customer contract, or “contracted out R&D”?
Do not lump these together. A grant is usually financial support without a deliverable owed to a customer. A customer contract often has deliverables and acceptance criteria, which can affect whether the work is considered contracted out and who can claim under the R&D rules.
If you are doing R&D to meet a customer specification, you may still have qualifying R&D, but you need to be clear whether the R&D is genuinely yours, whether it is commissioned and who bears the risk.
3) Does the funding change your accounting and tax position?
Even if the grant does not reduce the R&D relief calculation, it can still change:
- Whether you are profit making or loss making for tax
- Whether you surrender losses (ERIS) or take the merged scheme credit
- How the benefit is used or paid out through the ordering rules and any caps
If you are close to break even, grant income can be the difference between a payable route and a non payable route.
How to handle grants in your R&D claim
Keep your project boundaries clean
The most common avoidable problem is messy scoping: one big “innovation project” that includes R&D, implementation, and commercial rollout. Split the project into phases and document the uncertainty resolution work separately.
Track the grant budget and actual spend side by side
For claim prep, keep two views of the same period:
- The grant budget categories and claims submitted to the funder
- Your R&D cost schedule categories used for tax
They do not have to match perfectly, but you should be able to explain differences.
Make the technical narrative and the funding story consistent
If the narrative says you were resolving uncertainty in a defined period, the cost schedule should reflect the people and tools doing that work, and the grant paperwork should not contradict the scope or timeline. Inconsistency is what triggers follow up questions.
Be careful with subcontractors and delivery partners
Grant funded projects often involve universities, labs, or specialist engineers. Under the post reform rules, subcontractor and EPW treatment is one of the most scrutinised areas, so keep contracts, scopes and invoices organised and link them back to the R&D activity.
Worked examples
Example 1: Innovate UK style grant supports staff and materials
You pay salaries and buy prototype materials. The grant reimburses some of those costs. Under the merged scheme, the fact the grant contributed does not automatically reduce the relief. Your job is to show the costs are qualifying, paid, and linked to qualifying activity, and to keep the evidence trail tidy.
Example 2: Grant plus customer contract in the same period
You have a funded feasibility project and a commercial contract for delivery. Your claim may include qualifying R&D costs across both, but the customer contract element needs careful analysis for contracted out R&D, and you should be prepared to explain who commissioned what and why the uncertainty sat with you.
Example 3: Capital heavy project
A grant funds a large piece of equipment. That grant may be great for your innovation, but capital expenditure is generally not part of R&D tax relief qualifying costs. You may need to look at other reliefs for capital items. Make sure you are not trying to force capital into an R&D revenue claim.
If you are combining grants and R&D tax relief, the safest approach is to treat funding paperwork and claim paperwork as one joined-up story. Keep the award terms, project scope and timelines aligned with your technical narrative and cost schedules, and document any differences clearly. Done well, grant funding and R&D tax relief can complement each other, supporting both the delivery of the work and the cashflow that keeps innovation moving.
Can I claim R&D tax relief if I received a grant for the project?
Usually yes. Under the merged scheme, the old SME subsidised expenditure reduction rules were not carried forward, so grant funding does not automatically reduce the relief available.
Does the same apply for ERIS?
Yes. HMRC’s ERIS guidance states there is no restriction on subsidised expenditure.
What if I am claiming for an older period under the historic SME scheme?
Then the old subsidised expenditure and State Aid concepts may still apply and can affect the route and the amount of relief for accounting periods before 1st April 2024.
Do I need to exclude costs that were reimbursed by a grant?
Not automatically under the merged scheme and ERIS, but you must only claim costs you actually incurred, paid and that meet the qualifying cost category rules. Keep clear evidence of the spend and avoid double counting the same cost in multiple places internally.
Can I claim if the grant is paid to a consortium lead or university partner?
Often, but it depends on who incurred the cost and who is claiming. If costs sit with another entity, you cannot claim them. If they are subcontracted to you or you subcontract to them, the subcontractor rules and contracts matter.
Does grant income affect how much cash I receive?
It can. Grant income may move you into profit, change whether you surrender losses and affect how the credit is used under the ordering rules and caps.
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