Can we stack this? Combining grants, R&D tax relief, Patent Box and other incentives

You’ve got a decarbonisation, factory upgrade or digital project on the table and a familiar question comes up: can we claim grants, R&D tax relief, Patent Box and other incentives on the one project, without breaking the rules? In many cases, you can. Several incentives will happily sit side by side, but how you fund and structure the work still drives what you can and and can’t claim.

Under the merged R&D scheme, which applies for accounting periods starting on or after 1 April 2024, the old challenge around “subsidised” R&D has eased, but funding structure and control still matter. The way you contract, who directs the work and who ultimately pays for it will still change which rate you can use and how much benefit you get.

Instead of trying to memorise every rule and interaction, it might be easier to run any sizeable innovation project through the checklist below.

1. Who is really bearing the risk and cost?

Start with the economic reality: who is taking the risk on this project? If a customer or public funder is paying you to deliver a defined outcome, that can change how R&D tax rules treat your expenditure. Under the merged scheme, the focus is on who decides to undertake and direct the R&D. The company that initiates and controls the work – the real decision maker – is usually the one that should claim, as long as it is also incurring the qualifying expenditure and bearing the economic risk.

For grants, the old SME “double dip” restriction has largely disappeared. Under the merged scheme, even grant funded R&D costs can still qualify for relief, rather than being automatically excluded, provided you meet the usual rules on who is carrying out and paying for the R&D. If you are a loss making SME aiming for the higher ERIS (Enhanced R&D Intensive Support) rate, you still need to check that your qualifying R&D spend hits the 30% intensity threshold.

2. Who will own the IP and the assets?

Next, look at ownership and control of the outputs. For R&D tax relief, owning IP is not a formal requirement in itself. However HMRC will be using the Additional Information Form (AIF) as standard to test whether the claimant is genuinely carrying out, directing and funding the R&D they are putting into the claim.

For Patent Box, it’s different. Ownership sits at the centre of the regime: the company must own or exclusively license qualifying patents and show a clear link between its own R&D activities and the patented inventions before it can access the reduced Corporation Tax rate on those profits.

For Grants, if a grant agreement or customer contract requires you to assign IP away, you may still secure near-term funding and possibly R&D relief, but you could be trading away a longer term Patent Box benefit in exchange for short-term cash. This is worth keeping in mind at proposal stage.

3. Which costs are actually being covered?

Next, get specific about which costs are actually being funded. Under the merged scheme and ERIS, “subsidised” expenditure is no longer blocked from relief in the way it once was, but the contracting rules, control tests and anti double counting safeguards still apply. You still need to avoid claiming twice on the same cost across different tax reliefs and understand how grants and other non tax funding interact with those claims.

One way to do this is to split the project budget into funded and unfunded lines: grant funded items, customer funded items and items funded by your business. Once that’s clear, it becomes much easier to see which costs can support an R&D claim, which costs feed into future Patent Box planning, and where other reliefs might come into play. Capital allowances, for example, often get overlooked here.

4. Are you chasing cash now or tax savings later?

Finally, be honest about what matters most to the business at this stage.

Some incentives exist to put cash back into the business quickly. Grants and payable R&D tax credits fall into that category. Under the merged scheme, most companies see a net benefit in the mid teens as a percentage of qualifying spend with higher support available for loss making R&D-intensive SMEs under ERIS.

Other incentives, like Patent Box, are about lowering the effective tax rate on profits in later years, once the project has produced commercial products or services.

Most businesses end up using a mix. You use grants and R&D relief to get projects moving, while making sure IP ownership, contracts and documentation put you in a position to elect into Patent Box once revenue starts to land. The point is to make those choices deliberately, using the four checks above, rather than assuming every project can carry every incentive all at once.

If you’re planning a project and want to know how grants, R&D tax relief and Patent Box might work together, get in touch with the ABGi Team. We’ll talk through your options and explain how we can help.