Research and development grants

A research and development grant pays a share of a defined project’s costs after a competitive application. R&D tax relief is claimed through the company tax return on qualifying spending, and since April 2024 a grant no longer reduces it.

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Grants and tax relief for the same work

Two kinds of public money pay for research and development, and a company can use both. A grant comes from a funder such as Innovate UK, Scottish Enterprise, the Welsh Government or Invest NI. You apply for a named project before it starts, compete with other applicants, and if you win you are paid a percentage of the eligible costs as you claim them. The funder decides, and most of the work is in the application.

Research and development tax relief is an entitlement. A company whose work seeks an advance in science or technology by resolving uncertainty can claim it in its corporation tax return after the accounting period ends. For accounting periods beginning on or after 1 April 2024 there are two routes. The merged scheme gives an expenditure credit of 20% of qualifying costs, which HM Revenue & Customs taxes as trading income. Enhanced R&D intensive support is for loss-making small and medium companies whose research spending is at least 30% of their total spending: they can deduct an extra 86% of qualifying costs and claim a payable credit worth up to 14.5% of the surrenderable loss.

The grant arrives during the project and pays for work the funder chose. The relief arrives after the year end and covers any qualifying work, including work no funder would back. A loan can also be raised against an expected claim: see R&D tax credit loans.

Rates at November 2026

20%Merged scheme expenditure credit on qualifying costs
30%Research share of total spending needed for enhanced intensive support
14.5%Payable credit on the surrenderable loss under enhanced intensive support
£315,000Minimal Financial Assistance limit over three financial years

Source: GOV.UK, research and development tax relief: the merged scheme and enhanced R&D intensive support; Subsidy Control Act 2022 section 36.

How a grant affects a relief claim

Before April 2024, a grant cut into a small company’s relief. Under the old scheme for small and medium enterprises, costs met by a grant or other subsidy were subsidised expenditure: they could not go into the small company claim, though the subsidised part might be claimed under the expenditure credit scheme at a lower rate. A project that received notified state aid could only be claimed under the expenditure credit, and a project could not receive more than €7.5 million of small company relief.

Those rules went with the merger. HM Revenue & Customs guidance says there is no restriction on claiming for subsidised costs under the merged scheme or enhanced R&D intensive support, and that the size of the company and whether the project was subsidised are no longer relevant. For accounting periods beginning on or after 1 April 2024 you can claim relief on the full qualifying cost of a project, including the part a grant paid for.

Two points still apply. The grant itself is taxable: HM Revenue & Customs treats a grant toward revenue costs, such as salaries and materials, as a trading receipt, and a capital grant reduces the cost on which you claim capital allowances. And the relief claim has its own rules on which costs qualify and on spending overseas, which do not always match the funder’s list of eligible costs. Keep separate records for each.

A grant and the merged scheme on one project

Illustrative example

A company spends £200,000 of qualifying costs on a project that wins a 45% grant. It claims the merged scheme credit for an accounting period that began after 1 April 2024.

Qualifying project costs
£200,000
Grant at 45%
£90,000
Company’s own share
£110,000
Merged scheme credit at 20% of the full £200,000
£40,000
Grant and credit before corporation tax
£130,000
Both the grant and the credit are taxable, so the amount the company keeps depends on its tax rate. Under the old small company rules for periods before April 2024, the £90,000 met by the grant could not have gone into the small company claim.
A worker checking a large lathe on a factory floor

Which research and development grants exist

Innovate UK runs competitions across the UK through the Innovation Funding Service; its open-to-all Smart grants have closed, as set out on Innovate UK grants. Scottish Enterprise offers research and development grants of between 35% and 50% of eligible costs for small and medium companies working alone, for projects of at least £1 million of company spend and grants of at least £250,000. Its Smart Scotland feasibility grant is on hold, with a new fund due in late autumn 2026.

In Wales, the Smart Flexible Innovation Support capital equipment round offered £50,000 to £250,000 and closed on 25 September 2026. In Northern Ireland, Invest NI’s Grant for R&D is for its client companies, which need the potential to sell at least 25% outside Northern Ireland, or £250,000, and to employ ten people within five years. Every open central government scheme is in our grant finder, and Swoop’s platform matches businesses with grants as part of a funding search.

Grant-funded costs before and after April 2024

Small company scheme, periods before 1 April 2024Merged scheme and enhanced support, periods from 1 April 2024
Costs a grant paid forLeft out of the small company claim; could go into the expenditure creditClaimed in full
Project with notified state aidExpenditure credit onlyClaimed in full
Main reliefExtra deduction of 86%, 186% in totalExpenditure credit of 20%
Loss-making companiesPayable credit up to 10%, or 14.5% if research spending was at least 40% of the totalEnhanced support: payable credit up to 14.5% if research spending is at least 30% of the total
Your accountant prepares the claim; a grant offer letter and the claims you made against it are part of the evidence.

Questions people ask

Does a grant reduce my R&D tax relief?

Not for accounting periods beginning on or after 1 April 2024. HM Revenue & Customs guidance says there is no restriction on claiming for subsidised costs under the merged scheme or enhanced R&D intensive support. Before that date, small companies could not include grant-funded costs in the small company scheme, though the expenditure credit could cover them.

Can I get an R&D grant and R&D tax relief on the same project?

Yes. The grant pays a share of the costs during the project, and the company can claim relief on the full qualifying cost after its year end. Keep the grant claims and the tax claim records separate, because the funder’s eligible costs and the tax rules on qualifying costs differ.

Is an R&D grant taxable?

Yes. HM Revenue & Customs treats a grant that meets revenue costs, such as salaries, materials and subcontractors, as a trading receipt taxed with your profit. A grant toward equipment reduces the cost on which you claim capital allowances. The merged scheme credit is also taxable as trading income.

What counts as research and development for a grant?

Each funder defines it in the competition brief. Innovate UK uses three categories: feasibility studies, industrial research and experimental development, which is work closer to market and funded at a lower rate. The tax definition is separate: work that seeks an advance in science or technology by resolving scientific or technological uncertainty.

Can I borrow against an R&D tax credit?

Some lenders advance part of an expected claim before HM Revenue & Customs pays it, and are repaid when the credit arrives. The lender sets the terms and checks the claim, your claims history and who prepared it. See R&D tax credit loans.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Grants

Innovate UK grants

Competitions open now, funding rates, assessor scoring and innovation loans.

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R&D tax credit loans

A loan against the R&D tax relief your company expects to receive, repaid when the claim is paid.

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How do business grants work?

Match funding, claims paid in arrears, subsidy control, clawback and tax.

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Business grants in Scotland

Scottish Enterprise, Highlands and Islands Enterprise, South of Scotland Enterprise.

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All business funding

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