Ian Davie
Senior Consultant
CIRD81670 forms part of HMRC’s Corporate Intangibles Research and Development (CIRD) Manual. It explains how companies claiming Research and Development (R&D) tax relief under the SME scheme must consider the effect of State aid. The guidance covers how notified State aid, including certain grants and subsidies, affects eligibility for relief. It also sets out how this interacts with the R&D Expenditure Credit (RDEC) scheme, de minimis aid, and funding from EU programmes.
The latest update to CIRD81670 has been made to improve clarity and reflect current schemes. One of the main changes is the removal of references to the Large Company R&D tax credit scheme, which was withdrawn in 2016. In the old version, this scheme was mentioned as an alternative route for companies that could not claim SME relief due to receiving notified State aid. The new version no longer refers to this scheme and focuses solely on the RDEC, which is now the relevant alternative for such companies. This change aligns the guidance with the current legislative landscape, ensuring that companies are not misled by outdated references to schemes that are no longer available.
Language in the updated guidance has been simplified and made more direct. Some sections have been reworded to improve readability, and minor additions have been made to reflect current understanding. For example, the new version notes that government grants are not always State aid and adds that increasingly, they will not be.
The core rules surrounding CIRD81670 remain the same, a company that receives notified State aid for an R&D project cannot claim SME R&D tax relief for that project. This restriction applies even if the aid is later repaid. Similarly, if a company receives de minimis aid – defined as less than €200,000 over 3 years where that aid was granted on or before 31 December 2023, and €300,000 when the aid was granted on or after 1 January 2024 this aid may qualify as de minimis aid under the De Minimis Regulation– it cannot claim SME relief for any part of the project costs funded by that aid. However, it may still claim for parts of the project that are not subsidised. The aid intensity limit, typically set at 50% of the project’s eligible costs, must still be observed. This test applies at the project level, rather than based on the company as a whole. This clarification is important for companies managing mixed funding sources within a single project, as it ensures that only the subsidised portion is excluded from SME relief.
The updated version also clarifies the position regarding RDEC. It confirms that a company in receipt of notified State aid or de minimis aid can still claim RDEC for qualifying R&D expenditure. There is no rule within the RDEC scheme that prevents subsidised costs from qualifying for relief. This position was mentioned in the old version but is now more clearly stated.
There are no changes to the criteria used to define an SME. A company must still have fewer than 500 employees and either an annual turnover not exceeding €100 million or a balance sheet total not exceeding €86 million. The treatment of EU funding also remains the same. Direct EU grants, such as Horizon 2020, are not classed as State aid, meaning companies can claim SME relief on their own expenditure funded by these grants. However, structural funds like the European Regional Development Fund (ERDF), which are managed by the UK Government, are considered State aid and are treated accordingly.
In summary, the revised CIRD81670 improves the structure and readability of the guidance without changing the underlying policy. It removes outdated references, confirms the correct treatment of grants and State aid, and provides clearer direction on when RDEC can be used as an alternative to SME relief. These improvements not only aid interpretation but also reduce the risk of error in R&D tax claims, especially for companies navigating complex funding arrangements.
Read the full guidance: CIRD81670 – R&D tax relief: conditions to be satisfied: effect of notified State aid – HMRC internal manual – GOV.UK
If you like any help or support understanding the information provided in the CIRD81670 manual, please get in touch with our TBAT team today.
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