Grants, Subsidies and R&D: How Public Funding Affects Your Claim
Written by:
Daniel Scott
Partner & Head of Accounting
Do grants really reduce your R&D tax claim?
For years, founders have been warned that taking grant funding will wreck their R&D tax relief.
“Accept the Innovate UK money and your claim disappears.”
“Grant-funded projects aren’t worth claiming for.”
That advice used to have some truth in it.
It no longer does.
From 1 April 2024, the UK moved to a new merged R&D scheme. In the process, the old SME rules that caused most of the grant-related damage were removed.
Yet the myth refuses to die — and it’s still costing funded startups serious cash.
The simple truth (post-April 2024)
For accounting periods starting on or after 1 April 2024:
👉 Grant funding does not automatically reduce your R&D tax relief.
HMRC’s guidance is explicit:
There is
no restriction on claiming for subsidised costs under the merged R&D scheme or Enhanced R&D Intensive Support (ERIS).
If the work qualifies as R&D and the costs qualify, the fact that a grant helped fund it does not disqualify the spend.
That’s the rule change most founders — and many advisers — are still missing.
Why funded companies still get this wrong
If grants aren’t the problem anymore, why do so many funded startups still end up with:
- reduced claims,
- long HMRC enquiries, or
- cash outcomes that don’t match expectations?
Because grants raise the bar.
Funded projects come with:
- defined scopes and milestones,
- reporting obligations,
- named partners and suppliers.
If your grant documentation says one thing and your R&D claim tells a different story, HMRC will notice — even if the underlying work is genuinely innovative.
Grants don’t kill claims.
Inconsistency does.
The three questions that decide everything
Before you model a single number, you need clear answers to these:
- When does your accounting period start?
The post-April 2024 rules only apply if your period begins on or after 1 April 2024. - Are you loss-making and R&D intensive?
If yes, ERIS can materially change the cash outcome — but only if it’s modelled correctly. - What exactly does the award letter say?
Grant conditions, state-aid tracking, and reporting language all need to align with your R&D narrative.
Most problems we see come from skipping one of these steps.
A quick reality check on the numbers
Under the merged scheme:
- The headline credit rate is 20%
- The credit is taxable, so the net benefit depends on your corporation tax position
For profitable companies, the real-world net benefit often lands around:
- ~15% (if taxed at 25%), or
- ~16% (if taxed at 19%)
Crucially, that calculation is based on qualifying R&D spend, not whether the spend was grant-funded.
The old instinct to “net the grant off the R&D costs” is usually wrong post-April 2024.
The hidden swing factor: contractors, not grants
In grant-funded projects, the biggest changes in claim value rarely come from the grant itself.
They come from:
- contractors,
- externally provided workers (EPWs), and
- who actually made the decision to undertake the R&D.
Misapplying contractor rules can wipe out far more value than any grant interaction ever did.
And those rules apply with or without funding.
Where we see founders lose money
By the time clients come to us, they’ve often:
- accepted outdated advice,
- underclaimed “to be safe”, or
- filed something that doesn’t match their grant reporting.
The result is either:
- less cash than they should have received, or
- months of avoidable back-and-forth with HMRC.
Both are expensive.
How we help grant-funded startups get this right
At On The Go Accountants, we specialise in R&D claims for funded and scaling businesses.
We don’t just “do the calculation”. We:
- review your grant terms and reporting,
- model merged scheme vs ERIS where relevant,
- map contractors and EPWs correctly, and
- build a narrative that actually matches what happened on the ground.
The goal is simple:
maximum legitimate relief, paid as quickly as possible, with minimal HMRC friction.
Thinking about a claim this year?
If you’ve taken grant funding and you’re unsure:
- whether you’re over- or under-claiming, or
- whether the April 2024 changes apply to you,
book a call with us.
We’ll walk through:
- the grant,
- the projects,
- the numbers,
and tell you — clearly — what your best route is before anything is filed.
Getting this wrong costs cash.
Getting it right once is usually cheaper than fixing it later.
