Research and development & grant funding

Who is eligible to make an R&D claim?

The R&D tax relief is only available to companies who are spending money on qualifying activities. This can mean that even if you’re not making a profit and/or not retaining the intellectual property developed, you could still qualify.

What activities qualify?

Your company will qualify for R&D if it has undertaken activities that are:

• aiming to achieve an advance in science or technology;
• working to resolve scientific or technological uncertainty; and
• the solution is not easily found by someone competent in the field

In summary, if a significant amount of time and effort has to be spent by experienced people in the field, the costs associated with the work required to solve the problem could qualify for R&D tax relief.

What is the monetary benefit of making an R&D claim?

For Small & Medium Enterprises (‘SME’), the monetary benefit of making an R&D claim could be 33% of the qualifying expenditure identified if claimed as a tax credit (cash repayment). The net tax benefit could be higher for an SME if the qualifying expenditure can be offset against taxable profits.  The monetary benefit for ‘large’ businesses is around 10% of qualifying expenditure, whether the credit is offset against taxable profits or surrendered for a tax repayment under the Research and Development Expenditure Credit (‘RDEC’) regime.

The benefit of the SME R&D tax relief regime can be reduced by a number of factors, such as whether the qualifying activity is subsidised and a measure of the claimant’s UK payroll.

What is Horizon Europe?

Horizon Europe is the biggest EU Research and Innovation programme with nearly €100 billion of funding available from 2021 – 2027.  Horizon Europe is the financial instrument aimed at securing Europe’s global competitiveness.

Horizon Europe is open to everyone, with a simple structure that reduces red tape and time so participants can focus on what is really important. This approach makes sure new projects get off the ground quickly – and achieve results faster.

What is the EIC Accelerator?

The EIC Accelerator supports companies (SMEs, start-ups and spin-outs) to develop, bring to market and scale up new products, services and processes that could drive economic growth.

The EIC Accelerator helps you develop your business concept further into a market-ready product, service or process aligned with your company's growth strategy.  Activities could, for example, include trials, validation, demonstration and testing in real-world conditions, and market replication.

Activities could, for example, include trials, validation, demonstration and testing in real-world conditions, and market replication.

What are the benefits of the EIC Accelerator?

The EIC Accelerator supports breakthrough and disruptive innovations with scale-up potential that may be too risky for private investors.

The EIC Accelerator provides substantial financial support with grant funding (non-dilutive) of between €500k up to €2.5 million with projects lasting between 12 – 24 months.

With no set topics, all forms of innovation are considered. The technology or the technologies considered must be least at Technology Readiness Level (TRL) 5/6 (validated in relevant environment).

Horizon Europe is centrally managed by EU institutions (European Commission) and therefore not subject to state aid rules.

What is the typical process to securing a grant through the EIC Accelerator?

The EIC Accelerator has a 3-stage application process:

• Stage one (Short application): 5-page response to set questions, 10 slide pitch following a set format and a video pitch of up to 3 minutes. Stage one can be submitted at any time.
• Stage two (Full application): Full application based on the EIC template.  This has set submission deadlines with the next being 5^th October 2022.
• Stage three (Jury interview): Face-to-face interviews take place 8-9 weeks after the full application cut-off.

Does the EIC Accelerator funding affect a UK Research and Development claim?

Since the R&D regime for Small and Medium Enterprises (‘SME’) is so lucrative, with a cash credit being received of up to 33% of qualifying expenditure identified, the cash received is regarded as notified State Aid.

When an SME company receives state aid funding it is possible that the company will need to make its R&D claim under the ‘large’ R&D regime, more commonly known as the Research and Development Expenditure Credit (‘RDEC’) regime. R&D claims made under the RDEC regime typically receive a cash benefit of c.10% of the qualifying expenditure identified.

One of the main advantages of both the Horizon Europe funding (including the EIC Accelerator) is that the funding is not regarded as state aid, and therefore the funding will not impact the ability of a project to fall under the SME regime for R&D purposes (see CIRD81670).

For completeness, even if state aid funding is received by a company, it is possible to minimise the impact on a company’s R&D claim through careful planning. For example, a company could ensure that grant funding specifies exactly which activities it will be supporting, so those qualifying projects that are entirely self-funded can continue to be claimed under the SME regime.

How can you be assisted in (a) making an R&D claim, and (b) accessing EIC Accelerator grant funding?

From an R&D tax relief perspective, our specialist Intellectual Property group is constantly working together with clients to prepare and submit R&D claims. The team has developed significant experience in making robust claims and securing successful outcomes for their clients. The team’s success is based on their in-depth and systematic approach and their trusted relationship with HMRC.

From a grant funding perspective, G & H Associates (Europe) Ltd (GHE) has over 22 years’ experience working with clients to access grant funding schemes. The company has an extremely strong track record in raising awareness of the benefits offered by both EU and National funding programmes across a variety of schemes and thematic areas. As a result, GHE can assist you right the way through the application process by setting up and developing your budget and writing and submitting it on your behalf.

In summary, in order to optimise any grant funding obtained in respect of R&D activities careful planning is required. This is because the way in which the rules interact can be complicated and can significantly impact the overall benefit obtained. As a result, getting both R&D tax relief and grant funding experts on your side before you commence your R&D activities is the best way to optimise the position.

Get in touch

If you have any questions regarding the above, please get in touch with us using the form or contact Christopher Ridley below. 

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