No. For accounting periods beginning on or after 1 April 2024, grant funding, including Innovate UK awards, does not block or reduce relief under either of the current schemes. A company can take the grant and claim the merged R&D expenditure credit, or ERIS if it qualifies, on the same project. The grant and the tax relief now stack.
Why so much online advice says otherwise
Under the old SME scheme, grants genuinely were a problem. The subsidised-expenditure rules pushed grant-funded spend out of the generous SME scheme, typically into RDEC where its conditions were met, and a notified State aid grant could taint an entire project — though not every grant was a notified State aid, so even the old analysis was rarely as blunt as the folklore around it. A whole planning industry grew up around structuring grants to protect R&D claims, and much of the guidance still published online describes that world as if it were current.
It is not. The subsidised-expenditure rules were abolished for accounting periods beginning on or after 1 April 2024, so the old interaction problems fall away. The old rules now matter mainly for backdated claims: accounting periods that began before 1 April 2024, where the claim window generally runs two years from the end of the period of account. For those periods the old analysis still has to be run, and grant-funded companies with unclaimed old-scheme years should take advice before assuming either way.
One exception exists and it applies where the company’s registered office is in Northern Ireland. An NI-registered SME claiming ERIS can be subject to a de minimis State aid limit on the extra benefit ERIS gives over the merged scheme, counted alongside the company’s and its group’s other de minimis aid over the period of three years ending with the day on which the R&D claim is submitted. The ceiling is €300,000 for most businesses and lower where the main activity sits in particular sectors — €50,000 in agriculture, €30,000 in aquaculture and fisheries — and breaching it withdraws the capped relief. Two things sit on the other side of that. Companies claiming ERIS under the Northern Ireland provisions are outside the restrictions on overseas contracted-out R&D and externally provided workers, which claimants elsewhere in the UK have to work within. And an NI-registered SME whose business involves no trade in goods, and no trade with an element of relevant activities in relation to electricity, can notify HMRC in writing under section 1112J to be treated under the standard ERIS rules instead, which takes the de minimis limit away — though it gives up the overseas exemption at the same time, so the choice has to be worked out on the company’s own numbers. Companies registered in Great Britain are unaffected by any of this, wherever in the UK they trade: if that is you, there is nothing here to manage.
What still matters under the current rules
The grant changes the corporation tax picture even though it no longer restricts the R&D claim: grant income is taxable, so for a loss-making SME weighing an ERIS claim it reduces the trading loss and with it the loss available to surrender. What it does not touch is the 30% intensity condition. That ratio compares relevant R&D expenditure with total relevant expenditure — expenditure on both sides — so grant receipts have no place in it, and grant-funded spending counts in it like any other spending. So the right way to think about it is not “does the grant block the claim”, which it does not, but “what does the whole funding stack look like on our numbers”. This combination matters most to pre-revenue deep tech companies, exactly the businesses whose R&D runs on grant funding, and it is a calculation we run routinely.
Funding does still bear on one question under the current schemes, though not on the size of the relief. Where one party pays another to carry out R&D, who commissioned the work, who bore the risk and who intended or contemplated the R&D decide which company is entitled to claim: the subject of contracted-out R&D.
Where to go next
Our guide to grant funding and R&D tax relief sets out the current position in full, with a worked example. If a funder, accountant or old blog post has told you a grant kills your claim, check the date of the advice before you act on it, or ask us and we will give you the current answer.
Sources
- R&D tax relief: the merged scheme and ERIS — the current schemes, with no subsidised-expenditure restriction.
- The merged scheme policy paper — the reform that abolished the old rules.
- CIRD125000: ERIS and Northern Ireland companies — the de minimis State aid limit, the sector ceilings, the section 1112J opt-out and the overseas exemption for NI-registered ERIS claimants.
- Section 1045ZA, Corporation Tax Act 2009 — the intensity condition, comparing relevant R&D expenditure with total relevant expenditure.
This page describes the rules as they stood at the review date above, as general information rather than advice on your circumstances. For how that distinction works, see our terms; for an answer on your own facts, talk to us.