Input VAT on expenses incurred on Out of Scope Grant funded scientific project

Grant income has been received to fund a scientific research project and the provider has made it clear no return is expected and the grant is outside the scope of VAT. Our business is VAT registered and carries out commercial projects as well. I am looking for confirmation whether input VAT can be reclaimed on expenses incurred specifically matched to the out of scope income. The grant provider is insisting that it can be, and the grant covers the ex VAT costs only. The expenses incurred are a "business activity" in that the business owns any IP and outcomes of the project, which have commercial and scientific value.

Hi,
In order to treat any incurred VAT as input tax you always have to be satisfied that there is a direct link between the VAT incurred in the making of taxable supplies by the business.
Please see below:
Introduction to input tax
Thank you.