R&D tax credit vs. grant: the difference that changes your claim

A grant is cash paid upfront (or on milestones) for a defined project, decided competitively before the work starts. An R&D tax credit is a reduction in tax owed — or, for a loss-making company, a cash credit — calculated after the fact from R&D expenditure you have already incurred, with no competitive selection: if the spend qualifies, the relief follows.

They are not simply stackable. Under UK law (Corporation Tax Act 2009, as HMRC applies it), expenditure that has been "subsidised" by a grant is not eligible for relief under the SME R&D tax credit scheme. HMRC's own manual states it plainly: "R&D tax reliefs under the SME scheme are not available for expenditure that is subsidised," and where a project has received any funding that counts as notified State aid, no expenditure on that project can qualify under the SME scheme at all. A company in that position can instead claim under the Research and Development Expenditure Credit (RDEC) scheme, which — unlike the SME scheme — has no rule against subsidised expenditure, though usually at a lower headline rate than the SME scheme offers.

The practical takeaway for a UK company weighing both a public grant and an R&D tax credit for the same project: check which scheme the grant-subsidised spend falls into before you plan the tax credit into your cash-flow forecast — the two can reduce, rather than add to, each other. Rules differ outside the UK; check your own country's R&D tax authority before assuming the same interaction applies.