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Are R&D Grants Taxable?

Posted on September 5, 2022

Filing for R&D grants can be a daunting and tricky subject to navigate without a specialist on hand – there are so many questions to be answered and lots to consider.  That’s where we come in! Amongst many, one of the questions we often receive is ‘is my R&D grant taxable?’. Well, the answer is, it depends. Let us explain.  

 

What are R&D Grants?  

Firstly, let’s clarify what we mean when talking about R&D Grants or tax credits. R&D stands for Research & development. R&D Grants/tax credits are a government incentive introduced to encourage innovation across UK industries, allowing businesses to claim back up to 33% of their R&D expenditure. Many companies conduct research & development activities already, making them eligible for tax relief without them even knowing it! Sectors we see lots of R&D activity already are IT, Agriculture, Manufacturing, and Science & Medicine.  This is not 

 

What is the difference between SME and RDEC? 

R&D tax credits fall under two branches; SME Tax Credit scheme, and the RDEC Tax Credit Scheme. These two schemes cater for different company sizes.  

SME stands for small and medium enterprise and is the most common out of the two schemes. Businesses that fall under this category must have:

  • Less than 500 employees. 
  • Less than €86M in gross assets. 
  • Less than €100M in turnover. 

RDEC stands for Research and Development expenditure credit, and this scheme caters to businesses that exceed the above criteria.  

 

Is my R&D Grant Taxable? 

 The answer to this question depends on which R&D regime you are claiming under.

Under the SME scheme, your R&D grant is a benefit in the form of either a Corporation Tax Reduction or as a tax credit. In other words, it is not taxable. 

Under the RDEC scheme, however, your R&D grant is considered above-the-line credit and will be treated as taxable income.  When calculating your company’s profit before tax, this is typically counted as ‘other’ income.  

We would advise you to speak to an R&D specialist for the specifics on this – that’s what we do best!  

Our R&D Specialists are on hand to help you, and only deal with R&D related services. This makes them true experts in the field!  Contact us today for a free, no obligation call.