Grant recoupment tax

If the company has received any government money in respect of R&DTI project expenditure, then the corresponding project expenditure is subject to clawback of R&DTI offset received against the relevant amounts.

Under current rules, an additional tax equivalent to 10% of the project spend that was grant supported is incurred. This was originally intended to remove the net benefit portion of the R&DTI based on the offset rates and company tax rates in force at the time the legislation was written. Those rates have since changed so whether or not to include a grant supported project in an R&D claim will depend on the total net benefit derived from the project under R&DTI after deducting the 10% of the grant received that was included in the R&DTI eligible expenditure.

The clawback occurs when the grant is received, not when the expenditure is incurred, so the clawback may occur in a different financial year to the R&DTI offset it claws back against.

For small companies there is a residual net benefit and affected projects are often included. In the case of large companies with an 8.5% net benefit, the excessive clawback means that projects are often excluded, but your advisor can model the resulting benefit with and without.

You cannot avoid the clawback by receiving the grant in one entity in a group, spending it in a second and claiming the R&DTI in the second entity, as the clawback rules apply across connected entities.

Under proposed rule changes, the clawback will be aligned with the full net benefit received for the grant related R&DTI expenditure, so that the mismatch is eliminated. This will be effected by including additional assessable income calculated using the offset rate and company tax rate applicable to the company making the claim.