Winning the grant may seem like the biggest hurdle when you’re raring to get started on your project, but you’ll soon find that, once the grant has been awarded, there are more hoops to jump through. Managing your grant is an important aspect of receiving funding, as you will need to be able to demonstrate that you are making every effort to fulfil the project proposal and have used the money correctly. To manage or administer your grant requires specifically worded categorisation of how money has been spent as well as incorporating this into regular reporting.
See below for our starter’s guide that will easily provide steps for best practice –
Ideally, you should use separate cost codes to distinguish:
- Grant-supported project spending
- Non-grant projects qualifying for R&D tax benefit
- Other activities (eg marketing)
For example, if you have a product development code, C01, it would be useful to divide this into 3 codes:
- C01a) grant-qualifying activities
- C01b) R&D qualifying expenditure to develop a new capability
- C01c) refinements and improvements to maximise the commercial appeal of the product (non-R&D, not-grant)
Keeping clear records of how your overall spending has been allocated will show grant bodies, HMRC, investors and other internal stakeholders how money has been divided and used. This is important as it allows you to focus grant money solely on achieving the proposed project, without invalidating your other sources of funding such as R&D tax credits. If you have come across problems applying for grants and claiming R&D tax credits then you may want to read our article on 'How to use R&D tax credits together with grants', which explains how to strategically manage funding research projects from various government schemes.
You should also consider whether there are distinct goals or problems that are being solved without grant support. For example, if you were to buy a widget without grant support, it should still be included under the grant project cost code unless there is a distinct and separate R&D challenge that the widget is solving.
Be wary of grant agreements that are very broad in scope and do not leave much room for separate R&D investigations beyond the scope of the grant. When applying for grants, a common mistake made is that companies are often tempted to describe every innovative activity that they perform. If the grant application is later used as an annex to the legally binding grant contract, then you will struggle to benefit from other tax advantages or further grant funding. Therefore, we strongly recommend seeking out expert advice during the contract negotiation stage, once you’ve won a grant.
Another approach that can be used to help administer your grant funding is called the “time box” approach. Where a grant scope is very broad, or the administrative burden to strictly allocate spending is too great, then you may want to use the time box approach instead. By using this approach it simply means that every activity that occurs within the grant period is within the scope of the grant, and everything outside of the period is not. The time box option is not recommended as a go-to as it’s not strictly the correct protocol – you should always seek to identify different technical scope during grants periods as opposed to before or after the period. However, HMRC tend to be more understanding when this approach has been adopted compared to when companies attempt to run grant-funded activities and non-grant funded projects in parallel.
As you can see, managing grant funds can be a bit of a minefield, especially if you want to ensure you can still make the use of all other tax benefits available as well as apply for different grants in the future. Using a specialist accountant can make the process much more efficient, save you time and allow you to focus on your projects.
How we can help
- Prepare and support your quarterly grant claims
- Sum up all spending under the technical/R&D accounting codes (for all project partners)
- Prepare staff time sheets for all technical staff and partners to complete and sign
- Allocate payroll expenditure to the grant based on time sheets
- Request technical updates from key staff and project partners
- Prepare a technical progress report for Innovate UK (or other grant body)
- Update the project Gantt chart
- Update the project profit and loss spending forecast; and advise if necessary whether the company needs to correct its spending profile or time allocation to stay on track
- Check compliance to the grant agreement and prepare a virement request if the project is going off-plan
- Attend and support quarterly review meetings with your grant monitoring officer