D1.420A Subsidised expenditure and SME R&D tax relief
The normal rule is that an SME cannot claim R&D relief under the SME regime for expenditure which is subsidised1.
However, where certain conditions are satisfied, an SME may be eligible for relief for qualifying subsidised expenditure under the R&D expenditure credit (RDEC) scheme2 or, for expenditure before 1 April 2016, the large company enhanced deduction scheme3, for details of RDEC and the large company enhanced deduction scheme, see D1.435A.
Prior to IP completion day (defined as 11pm (GMT) on 31 December 20204), Government grants or loans could have constituted notified state aid, and therefore impacted on the availability of R&D tax reliefs.
Post IP completion day, with the end of the Brexit transition/implementation period entered into following the UK's withdrawal from the EU, state aid rules have been replaced by a subsidy control system in the EU-UK Trade and Cooperation Agreement (TCA) which prohibits certain specified subsidies if the subsidies concerned have or could have a material effect on trade or investment between the EU and the UK. However there is currently no detail on the operation of the subsidy control system or how it will interact with the Northern Ireland Protocol which maintains some aspects of the EU state aid rules.
Definition of subsidised expenditure for R&D
Expenditure is treated as subsidised in the following circumstances5:
• to the extent that a grant or subsidy (other than a notified state aid) is obtained for the