How grants affect your claim

Public funding and a tax incentive often support the same project, and every scheme has a view on how they meet. The views differ: a scheme may remove the funded cost, reduce the claim, adjust afterwards, impose no restriction or test the funded project against its eligibility conditions. A finance team that assumes its own country's model applies everywhere, or that a grant simply ends the claim, gets the arithmetic wrong in both directions.

The principle that holds everywhere is that funding has to be identified, recorded against the project and the cost lines it pays for, and then run through the scheme's model as a separate, visible step.

What this guide covers

• The five models.
• What counts as funding.
• Grants received, changed or repaid after the claim.
• Tracking funded projects so the arithmetic can be shown.
• Country differences.

The five models

Know which model applies before the project budget is built, because the model changes the value of the grant as well as the value of the claim.

Two of the models share a trap. Under exclusion and reduction the funded cost has to be split from the unfunded at the level of the grant agreement, which rarely matches the level of the claim. Under clawback the claim is made in full and the adjustment is easy to forget when the recoupment arrives two years later. The funding register described below answers both.

State aid and public funding: what counts as funding

Keep the definition broad, because each of the following is funding under at least one scheme and must be identified even where your country's rule does not catch it:

• Direct grants from national, regional and supranational bodies.
• Subsidies that pay part of a cost line, such as a wage subsidy for people on the project.
• Other tax incentives for the same costs, such as provincial R&D tax credits in Canada.
• Payments from a customer, partner or group company for the work, and cost sharing arrangements.
• Recoupments received after the cost was incurred.

State aid rules shaped the earlier United Kingdom scheme: under the SME scheme, expenditure that was subsidised, including by a grant or state aid, could not be claimed and was instead eligible for RDEC. United Kingdom companies still claiming for accounting periods beginning before 1 April 2024 need both rules.

The receipt itself may be taxable, as in Singapore. Record the tax treatment of every receipt alongside its effect on the claim; the two questions are easy to confuse.

Grants received, changed or repaid after the claim

Three timing problems recur, and the model decides how each is handled. Approval and payment in different periods: under the Canadian wording an approved but unpaid grant affects the year of the cost, because assistance reasonably expected to be received counts; other schemes turn on whether the expenditure was met by the grant. Record the approval date, the amount and the periods covered, and apply the country rule rather than waiting for the cash.

A recoupment after the claim: under the Australian model this is the design, and the clawback adjustment in the country table applies. Under the exclusion and reduction models a grant that arrives after the claim was filed means the earlier claim was overstated and should be revisited within the scheme's time limit for amending a claim; the country deadlines pages set those limits out.

A grant repaid, withdrawn or reduced: cost that was excluded or reduced may now be eligible. The same revisit applies, in the company's favour, and it is only possible if the funding register shows which costs the grant paid for in the first place.

Tracking funded projects

The funding register is a table kept alongside the project codes and maintained as grants are applied for, not at year end. One row per project and funder, with columns for the funder and programme; the letter of offer date; the cost categories funded; the funding rate or fixed amount; amounts received and receivable by period; the period covered; the tax treatment of the receipt; the claim periods affected; and a change log. File the letter of offer, the claims made to the funder and the remittance advices behind it.

Split funded from unfunded cost at the lowest level the grant allows. Where the grant pays named cost lines, tag those lines in the ledger. Where it pays a percentage of total project cost, apply that percentage to each eligible category consistently and write the method down. Where it funds a defined work package, give that work package its own project code so its costs can be excluded, reduced or adjusted without touching the rest of the project. A good register can state, for any period, eligible cost incurred, funding attributable to it, and the resulting claim figure under the country's model.

Finally, compare before signing. A grant is not free money and a claim is not lost because a grant exists. Calculate the benefit with and without the grant under your model, add the grant's cash timing and reporting conditions, and record the comparison before the application is submitted. Under the exclusion and reduction models the net value of the grant is the grant less the benefit forgone on the funded portion, and that net figure is what the board should see.

Illustrative example

Illustrative example. Brightwater Materials Ltd, a hypothetical company, has eligible project costs of 500,000 for the year and receives a public grant of 150,000 that pays 30 percent of the project's staff and materials cost. Under the excluded model the eligible base is 350,000: in Ireland, at the rate of 30% of qualifying expenditure for accounting periods beginning on or after 1 January 2024, that is a credit of 105,000 (Ireland: eligible expenditure). Under the reduced model the base is 500,000 less 150,000 of assistance, again 350,000, with the benefit calculated at that country's rate. Under the clawback model the claim is made on 500,000 and a later adjustment removes the extra benefit on the 150,000 recouped. Under the no restriction model the base stays at 500,000: in the United Kingdom the merged scheme gives a 20% expenditure credit on qualifying expenditure, taxable, so a gross credit of 100,000 before the tax on it (United Kingdom: merged scheme). Under the review scrutiny model the funding agreement is read first: if Brightwater Materials controls the work, bears the financial risk and owns the results, the project is tested on its merits, and the tax authority's guidance on government funding is checked before the claim is made. The funding register records the grant, its date, rate, categories and periods, so each figure can be reproduced on request.

Country differences

The linked page holds the detail.

Related pages

• Module 5: Grants and subsidised expenditure
• Startups and Scale-ups, module 3: Funding interactions
• United States: funded research exclusion
• Singapore: grants and other incentives
• Canada: provincial credits

Educational material, not advice. Eligibility and treatment depend on the scheme and the facts.