State Aid can be a brilliant source of funding support for UK companies, particularly during the coronavirus pandemic. Since the pandemic started, the UK Government has come out with even more schemes and Covid-related support for UK businesses that needed the extra funding.
So, are R&D Tax Credits State Aid? Although State Aid can be a great help, the general rule is that UK businesses can only claim one form of State Aid – this could include Covid support, R&D Tax Relief, and even some Grant Funding. This means that you need to be quite selective with how you utilise Government schemes that are considered State Aid.
If you’re a small business (SME) that has received a form of State Aid, you will not be able to also claim R&D Tax Relief under the SME scheme. For smaller UK businesses who’re needing to claim back R&D, this could prove to be a problem. However, there are some alternatives. In 2000, HMRC created R&D Tax Relief, as a way to support UK businesses both large and small, to encourage new innovation and also boost the economy. There are two branches of R&D Tax Credit incentive, the SME scheme, and the RDEC scheme. Depending on the size of your business, all UK companies are eligible to claim tax relief on their R&D expenditure. For smaller businesses, the SME scheme offers the chance to claim up to 33% of eligible expenses and R&D costs, which can be a massive help to fund future projects and company endeavours.
For larger companies, they can still claim back for the R&D expenses, but only up to 13% or 20% depending on period. Though it is not as big of a pay-out, it will still help to support future innovative projects. As mentioned previously, businesses who have already received State Aid through a Grant or other Government support, may not be able to claim through the SME scheme, but they’re likely to still be able to claim through the RDEC scheme. The RDEC scheme gives the opportunity to claim for some State Aid funded expenditure, such as materials, consumables, and externally provided workers and some subcontracted activities after 1st April 2024.
The exception of the above rule is if a proportion of the project has been funded by the company and not via State Aid, in that case, the business can claim via the SME scheme for that portion of expenditure.
Though you can prepare an R&D Tax Relief claim yourself, a specialist will be able to help you organise all of your costs in a way that will help you claim the most for your R&D, even if you’ve already received State Aid. State Aid is divided into two categories, Notified State Aid and Non-Notified State Aid. According to the European Commission rules, the SME scheme is classed as Notified State Aid. In order to keep everything fair and ensuring the Government is not over subsiding their own companies, only one form of State Aid is allowed per project within Europe (including De Minimis State Aid).
The RDEC scheme is not considered as Notified State Aid, meaning that companies that have received funding can also claim R&D Tax Relief under the scheme. Small businesses that have used Non-Notified State Aid grants to fund their project/s will only need to include the proportion of costs that was subsidised in the RDEC claim; any other eligible R&D costs can be claimed under the more generous SME scheme. During the pandemic, a number of new schemes and Government State Aid were introduced, to help support companies through the struggles of lockdowns. This includes the CBILS and BBLS, which are both classed as Notified State Aid, but there are no specific requirements on how the funding should be used. For this reason, if companies are strategic with how they use these loans and do not use them specifically for a R&D project, RDEC claims are able to be a great extra source of funding for innovation and R&D.
Figuring out where your company fits within these rules can be confusing. A specialist Consultancy could help you and your business receive all of the funding that you are due by clearly explaining what you’re eligible for, and how to understand the rules you need to navigate. Their experience of working with HMRC can also help you create a robust and successful R&D Tax Credit claim.
If you’re looking for additional help with your R&D Tax Credits claim, please contact us.
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