Definition
Grant funding refers to financial support from government bodies such as Innovate UK, Horizon Europe or the European Regional Development Fund. Under the old SME scheme, the receipt of notified state aid grants blocked SME R&D relief on the entire project, forcing the company to claim under RDEC instead. Under the merged scheme from 1 April 2024, the treatment is simpler: grants generally do not displace the merged scheme credit, but subsidised-expenditure rules still reduce the qualifying amount in some cases.
How HMRC defines it
HMRC guidance on grant interaction is at CIRD81670 for the old rules and CIRD90300 for the merged scheme. The distinction between notified state aid and other grants is covered at CIRD81680. Specific Innovate UK treatment is illustrated in HMRC's case studies referenced at CIRD81660.
Practical example
An AI company receives an Innovate UK Smart Grant of £200,000 towards a £500,000 R&D project. Under the merged scheme from 1 April 2024, the company claims the 20% above-the-line credit on the full qualifying expenditure, with the grant adjusted through the subsidised-expenditure mechanism rather than blocking the claim entirely, subject to review of the grant terms.