Questions •6 min read

Is R&D tax relief state aid?

MJ

Matthew Jones ACA CTA

Last reviewed August 2026 · Editorial standards

The question no longer has a live answer for current claims. The old SME scheme was a State aid — HMRC’s own guidance records that changes to it had to be notified to and approved by the EU — which is why a grant that was itself a notified State aid could stop a company claiming SME relief on that project. The old RDEC was treated differently, as a general measure rather than a notified State aid, so the same grant did not block it. Neither idea carries into current claims. The UK has run its own subsidy control regime since 4 January 2023, and for accounting periods beginning on or after 1 April 2024 the subsidised-expenditure restriction is abolished, so grant funding no longer reduces or blocks a claim.

Why the old SME scheme made grants a problem

One definition, two very different effects, and they are often confused with each other.

The first was the notified State aid rule. A notified State aid, in this context, means an aid notified to and approved by the European Commission. Where a company received one for an R&D project, it could not claim SME relief for that project at all, because the SME scheme was itself a State aid and the cumulation rules would otherwise have been breached. That is a project-level bar, not a pound-for-pound reduction: a modest notified aid could take a much larger project out of SME relief entirely. It also depended on the character of the particular award, because not every government grant was a notified State aid.

The second was the wider subsidised-expenditure rule, which removed subsidised costs from SME relief whatever their source, and which applied from the scheme’s introduction in 2000. Where subsidy was the only obstacle, accounting periods beginning on or after 9 April 2003 let an SME claim instead under the large company scheme, and from 1 April 2013 under RDEC. That rule is the one the First-tier Tribunal engaged with in the commercial-contract cases, and it is the one most old advice is really describing.

Why the old RDEC was not notified State aid

HMRC’s position on the old RDEC was that general measures not restricted to a specific group are not notified State aid, and it named RDEC as an example. The consequences followed: a company holding a notified State aid grant could still claim RDEC for that project, and could claim RDEC on qualifying costs the grant had funded.

This is the origin of the planning that dominated the old world. Grant-funded spend was pushed out of the generous SME scheme and into RDEC at a lower rate of benefit, with the project split and tracked accordingly. It worked, but it cost the company real money, and it is the reason so many grant recipients still assume a grant and an R&D claim are in tension.

What replaced State aid in Great Britain

The Subsidy Control Act 2022 received Royal Assent on 28 April 2022 and the UK subsidy control regime began on 4 January 2023. Subsidies given by public authorities across the UK are now assessed under that Act rather than under EU State aid rules, subject to the Windsor Framework carve-out below.

For R&D tax relief the practical point is narrower and more useful. The merged scheme sits in Chapter 1A of Part 13 of the Corporation Tax Act 2009, inserted by Finance Act 2024, and neither that legislation nor HMRC’s guidance on it carries the notified State aid machinery the old SME scheme depended on. There is no notified-aid bar to work around and no subsidised proportion to strip out. Asking whether a grant is a notified State aid before making a current-period claim is asking a question the current rules do not put.

Where State aid still bites

It is worth knowing about if it applies to you. Under Article 10 of the Windsor Framework, EU State aid rules continue to apply to measures affecting trade in goods, or the electricity market, between Northern Ireland and the EU. Where the Framework applies, those rules apply instead of the Subsidy Control Act.

That reaches into R&D relief in a specific and limited way. An SME whose registered office is in Northern Ireland and which claims 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, with ceilings set by the EU de minimis Regulations and lower ceilings in agriculture and in fisheries and aquaculture. In exchange, those companies sit outside the overseas restrictions that apply elsewhere, and some can notify HMRC in writing to opt out of the Northern Ireland treatment. Companies registered in Great Britain have nothing here to manage, wherever in the UK they trade.

What this means if you hold a grant

For accounting periods beginning on or after 1 April 2024, take the grant and claim the relief. Our guide to grant funding and R&D tax relief works the numbers through, and the short answer to the question people usually mean sits at does grant funding stop me claiming R&D tax relief.

For periods that began before 1 April 2024 and are still within the amendment window, the old analysis still has to be run properly, including whether a particular award actually was a notified State aid. Two points decide it in practice. HMRC treats all aid given under the General Block Exemption Regulations as notified State aid for these purposes, which catches more awards than people expect. Against that, HMRC’s own guidance records that following the UK’s departure from the EU, government grants will only be State aid in very limited circumstances — so a post-Brexit award is far less likely to be a notified State aid than the folklore assumes. Companies that under-claimed on grant-funded projects under the old rules are exactly the ones worth revisiting: see backdated R&D claims, or read how the current rules work in our guide to the merged scheme.

Sources

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.