HMRC internal manual

Corporate Intangibles Research and Development Manual

CIRD81650 - R&D tax relief: conditions to be satisfied: subsidies (SME scheme only)

CTA09/Ss1052(6), 1053(5) and 1138 - SME scheme only

R&D tax reliefs under the SME scheme are not available for expenditure that is subsidised. If the only reason that the expenditure does not qualify for SME scheme R&D tax relief is that the expenditure is subsidised, then, for accounting periods beginning on or after 9 April 2003, an SME can make a claim for relief under the large company scheme (CIRD89000).

Subsidised expenditure

Where a project has received any funding which is a notified State Aid (CIRD81670) then no expenditure on that project can qualify for the R&D tax relief under the SME scheme.

If a grant or subsidy is received other than by way of notified State Aid, the expenditure is subsidised to the extent that it does not exceed the subsidy. This may result in the expenditure qualifying for R&D tax relief partly under the SME scheme and partly under the large company scheme.

A notified State Aid, grant, subsidy or payment that is not allocated to particular expenditure should be allocated according to the underlying facts.

COVID-19 Government support

See CIRD 83200 for information about the Coronavirus Job Rentention Scheme and the Coronavirus Statutory Sick Pay Rebate Schemes

  • Coronavirus Business Interruption Loan Scheme
  • Coronavirus Large Business Loan Scheme
  • Bounce Back Loans

The three schemes shown above are all notified State aid, meaning that S1138(1)(a) CTA 2009 could potentially prevent a claim for SME relief. HMRC would only expect this to happen where the loan relates specifically to the company’s expenditure incurred on an R&D project rather than providing general support for the company;   


  • Future Fund

The loans provided through the Future Fund scheme are not notified State aid. They are not caught by s1138 CTA 2009 and need not be considered when looking at the State aid cumulation rules.

  • Recovery Loan Scheme

The Recovery Loan Scheme, was announced on 3 March 2021. In most situations HMRC do not consider that the receipt of these loans will have any effect on subsequent claims for Research and Development Expenditure Credit or for subsequent claims for the Small and Medium Size Enterprise Research and Development Relief. However, because the scheme is a notified State Aid, if a company’s R&D activities fall within the Northern Ireland Protocol there is a possibility that s1138(1)(a) will be in point. Where a company’s R&D activities fall within the Northern Ireland Protocol and the loan was obtained for, or used to fund, any element of those activities, a claim for Small and Medium Size Enterprise Research and Development Relief cannot be made because the expenditure has been subsidised and s1138(1)(a) applies.