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Grants and subsidies come with less baggage in new R&D Schemes

29th Mar 2024
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R&D tax relief training and support

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Grants and subsidies add a lot of complexity to claims under the old R&D schemes. Thankfully, the new rules make things easier for SMEs and advisors.

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Under the new Merged and Enhanced R&D Intensive Support (ERIS) schemes, SMEs no longer have to worry about the impact a grant or subsidy may have on their R&D tax relief claim. These schemes apply to accounting periods starting on or after 1 April 2024.

The rules for these new schemes are most similar to the rules of the old RDEC scheme for Large Companies, at least where it comes to grants and subsidies.

That means as an advisor, you no longer have to worry about splitting up an SME’s claim to account for a grant. (In the old SME scheme, the grant-funded part of the project was claimed through RDEC, with the remainder claimed through the SME scheme.) 

And in the case of legacy State Aid, SMEs will no longer have to spend time trying to work out whether it’s better to take the funding or apply for R&D tax relief. In the new schemes, State Aid doesn’t affect a company’s claim at all.
Having said that, the SME scheme and RDEC rules will still apply to any claims made for accounting periods starting before 1 April 2024, so there’s still quite a lot to bear in mind when your preparing claims for grant-funded or subsidised R&D projects.

If you’re feeling a little turned around, don’t worry, we’re here to help! Our team of R&D experts has created a new, free online course for R&D advisors that can help you deal with the introduction of the new Merged scheme. 

The course uses a series of short videos and quizzes that clearly explain the main features of the Merged Scheme. This includes important changes to subcontracting, overseas expenditure, prenotification, and much more.

Start your free R&D training course

How the rules for grants and subsidies differ between R&D schemes

If you’re working on a grant-funded claim under the old SME rules, the most important consideration is whether or not the grant was a form of State Aid.

If it was, the whole claim has to be made under the RDEC scheme. This is because the SME scheme is itself a form of State Aid – and only one form of this could be used on a single project. Even if the grant was really small or was repaid, the rules still applied. This meant that for some companies it made more sense to turn down a small State Aid grant in favour of the more generous relief available under the SME scheme. 

If the grant wasn’t State Aid, or the project was subsidised in another way, that had less financial impact on the claim but complicated the process of applying for relief. It resulted in a ‘compound claim’ in which the SME claimed through RDEC for the grant-funded portion of the project and through the SME scheme for the remainder. That creates more work for you as the advisor, as each scheme has its own rules, requirements and rates of return.

Unfortunately, for some companies these complexities will remain for a good while yet. For example, if an SME’s accounting period starts on 1 March 2024 and ends on 28 February 2025, their claim could be submitted under the old rules until 28 February 2027!

So for the next few years, R&D advisors are going to have to deal with a number of different schemes – SME, RDEC, R&D Intensive, ERIS and the Merged scheme. It seems ironic that in trying to simplify the R&D schemes, the Government has introduced a lot more complexity.

To find out what else is changing in the Merged R&D Scheme, and what is staying the same, you can read our previous article in this series: How is the Merged R&D Scheme different to the SME and RDEC schemes?