This guide runs through the major forms of government funding available to innovative businesses of every size: from sole-traders to multi-nationals. We’ll cover the year-round funding available (“Innovation Funding”), as well as the schemes designed to help businesses through the Coronavirus pandemic (“Coronavirus Funding”).
This guide was last updated on November 10th 2020.
To help navigate this section, we’ve organised the funding schemes according to their stage in the innovation lifecycle. Firstly we look at Ideation Stage schemes, which are applicable when you’re planning or researching your innovation. We then look at the Product Development and Commercialisation stage schemes.
While it’s more likely that a small startup will benefit from Ideation and Product Development Stage Funding, that is not exclusively the case. Large businesses are often engaged in innovation projects that mean they qualify for early-stage funding schemes, even if their core business is mature. For that reason, it’s essential to be aware of all the innovation projects your company is engaged in to ensure that you don’t miss any of the funding available.
Ideation Stage Funding
We suggest that every founder identifies relevant local funding schemes as soon as they register their business. The vast majority of local funding is for early-stage companies; however, there are some awards for the growth phase, e.g. the Northern Powerhouse Fund offers an equity finance option up to £2million.
There are over 150 local grants or loans available in the UK. They can be on a regional level (e.g. East of England Regional Growth Loan Scheme), county level (e.g. Rosebud Micro-Loans Lancashire), city level (e.g. Growth Start-up Support Programme – Greater Manchester) or even on a borough level (e.g. Self-employed Support – Royal Borough of Kensington and Chelsea). The amounts vary in size from approximately £500-£2million.
The awards will, of course, be primarily dependent on your business’s location. Also, the schemes can be sector specific (e.g. East of England Transport and Logistical Efficiencies Fund) or founder specific (e.g. Growing Graduate Enterprise Lincolnshire).
The government’s Regional Growth Fund list has the most complete list of local schemes available.
Innovate UK Grants
Innovate UK are charged with delivering the UK’s largest innovation grant scheme. The government established this grant scheme to fund innovation that the private sector considers too risky. So the grants are mostly aimed at companies engaged in Ideation Stage R&D, e.g. research, prototyping, planning etc.
Most of the grants are linked to the current technological “challenges” agreed together with industry. The list of challenges can be found on the UKRI website. If you’re operating in a sector related to one of these challenges, then your business is more likely to succeed in claiming a grant. However, Innovate UK also offer a smaller quantity of sector-agnostic, “Smart”, grants. These are more competitive and can be found in the full list of grants on the government website.
The average value of the grants awarded in 2019 was £270,000. They can range from £25,000 to £millions depending on the grant applied for. For some of the grants, you’ll need to make a joint application with another business.
The Knowledge Transfer Network is a government-funded organisation which promotes the takeup of the Innovate UK grant scheme. Their grant listings are the easiest to navigate. Additionally, if you plan to apply for a grant then it’s worth contacting their team as they run a number of workshops to help with your application.
EASME (EU Grants)
As part of the government’s withdrawal agreement, the UK pledged to honour all EASME grants awarded while we were a member of the European Union. The UK and EU are currently debating how these types of grants will be delivered after the UK leaves the EU. Most observers expect that either the UK will continue to contribute to the existing EU grants framework, or the UK will replace that framework with another similar international set of grants which aim to foster cross-border innovation. In either case, a similar grants scheme will continue into 2021 and beyond.
Grants are available for all sizes of businesses, including those at the earliest stages of Ideation (such as business plan stage). For that reason, we recommend that all businesses speak to a government-funded delivery partner such as Newable or Business West to ensure that you’re not missing any EU grant funding suitable for your size or sector.
Product Development Stage Funding
R&D Tax Credits
This credit allows you to claim back up to 33% of the money you’ve spent on R&D. For most early-stage businesses, your R&D costs will relate to the development of your first product. The most common costs associated with that development will be your engineering and product team salaries, as well as any materials needed in the development process.
The R&D tax credit is awarded after the R&D costs have been incurred. In that respect, it’s different from a grant which is designed to pre-fund R&D. A claim for R&D Tax Credits needs to be submitted after you’ve closed your accounts for the year, as you’ll be claiming on your R&D costs for that prior financial year.
The government has taken steps to make it easier to self-file your application, and we recommend that you pursue that route if you’ve spent less than £50,000 on R&D. To do so, consult the government guidance on making an R&D tax credit claim. Our Introduction to R&D Tax Credits is also a good place to start when trying to understand how the scheme works.
If you’ve spent more than £50,000 on R&D then it makes sense to engage with a specialist to help compile your claim. A specialist will help ensure that your claim is successful and that you’re claiming the most credit that you can. Determining which costs to claim against can get quite tricky, especially as you grow.
At EmpowerRD we’ve significantly improved the traditional process of making a claim. Our R&D claims experts work together with an intelligent online platform which speeds up the process of making a claim from 8-12 weeks down to 1-2. Our technical efficiencies also allow us to charge significantly lower fees than traditional advisors.
If you’re unsure about whether you meet that £50,000 threshold, then we recommend checking our guide to identifying your R&D costs.
R&D Tax Credit Advanced Funding
As discussed, R&D tax credits can only be claimed once the R&D costs have been incurred during the financial year. On top of that, it can take up to 3 months to receive the credit even after the claim is submitted to HMRC. The average duration between the claim being submitted and the payment being cleared at HMRC was 42 days in 2019.
For that reason, many businesses will choose to receive Advanced Funding secured against the award of their credit. This can either be delivered up to 9 months before the claim is submitted (“pre-submission financing”) or delivered at the point the claim is submitted (“post-submission financing”).
At EmpowerRD we offer both types of advanced funding. For post-submission financing, we offer a fixed 5% fee via our EmpowerRD Now service. For pre-submission financing, the interest rates will vary depending on the size of your claim, company circumstances and loan duration. Get in touch with one of our team to understand more.
R&D Capital Allowances
These are similar to R&D tax credits, but capital allowances allow for money back on assets which aid innovation, rather than staff and expendables. The scheme offers 100% tax relief on the capital expenditure which contributes to your innovation. Any UK business is eligible to apply. The commercial activity must meet the government’s standard of innovation also required of R&D tax credits.
This is widely used amongst manufacturers who will invest heavily in machinery to deliver a novel product type. For software businesses the most common form of capital expenditure claimable under this scheme will be large-scale internal IT systems. We recommend talking with a knowledgeable accountant about whether these Allowances will apply to you.
Commercialisation Stage Funding
Innovate UK Loans
We find that most tech businesses will overlook the potential for financing as a means of growth versus the more traditional equity investment route. Of course equity rounds bring access to networks which can help your business in non-monetary ways, but the rates available for Innovate UK loans make these an interesting route to growth without giving away equity.
The loans are explicitly aimed at helping with the Commercialisation Stage of innovation. They deliver between £100,000 and £1million, depending on your individual requirements. They have a typical interest rate of 7.4% with a 5-10 year repayment schedule – significantly outperforming most bank-lending at the same stage of business growth. Only businesses with fewer than 250 employees can apply so it might be a good alternative to raising a Seed or small Series A round.
Since Coronavirus, Innovate UK have changed the purpose of these loans. They are now aimed at supporting previous Innovate UK winners who are struggling because of the pandemic. Find details of them here. We expect that these loan s will return to their previous form once the pandemic is over.
This tax reduction is designed to reduce the significant costs associated with obtaining a “qualifying IP right” – most typically a patent. If granted, a company can apply a reduced corporation tax rate of 10% to worldwide profits arising from the invention.
In 2016, the government made changes to the scheme to close some loopholes. The downside of these changes is that it’s now known as being extremely complex to apply for and administer. This is especially the case when considering when to opt into the scheme. The relief has a fixed time limit and only applies to the profits derived from the individual patented product. As such, if you opt into the scheme too early, then your early losses bringing the product to market may prevent you from gaining sufficient reward once you gain market traction.
We recommend that if you’re planning to lodge a patent for your product, then hire an informed tax advisor to see whether this scheme will be suitable for your business, and importantly when it should be activated.
Coronavirus Response Funding
The government aimed their Coronavirus Response Funding into two key areas: by funding the employees whose jobs were at risk, and ensuring that businesses maintain liquidity.
While the Employee Funding applies to businesses of all sizes, the Business Funding schemes are each aimed at businesses of different sizes. We’ve sorted the Business Funding schemes in order from smallest to largest funding size.
Coronavirus Job Retention Scheme
Widely known as the “furlough scheme”, the JRS is the government’s support package for employees affected by national lockdowns. The scheme allows businesses to claim partial wages for the employees they can no longer afford. This income then forms the employees’ living expenses while they remain unemployed.
The income your employees can receive from the scheme will depend on when the claim was made. For the 1st phase of the scheme from March to August 2020, 80% of the employees’ wages were paid by the government up to a £2,500 cap. Between August and October the proportion of wages paid out reduced each month. Since the new national lockdown announced on 31st October, the 80% amount has been reinstated.
There are some complexities to the scheme: for example if your business receives partial public funding, or if your employees are contract workers. The scheme is only available to businesses who furloughed their employees before 30th June 2020 and made a claim for that period before 31st July 2020.
As of 31st October, the scheme has reopened to new claimants. Claims can be submitted online via the Government gateway while using your PAYE details. For more information, the government’s guide to the scheme is the most reliable resource.
Coronavirus Job Retention Bonus Scheme
The Bonus Scheme was a planned £1000 cash credit per employee for businesses who maintained furloughed employees on their payroll after the furlough scheme ended. However, the new national lockdown in England has delayed this scheme. It is uncertain if it will be reinstated after the end of this new lockdown period.
Job Support Scheme
The JSS was designed to replace the Job Retention Scheme, reflecting the regional approach the government took to lockdowns. We’ve included it here as it may again be implemented after the current national lockdown in November.
There are two versions of the scheme depending on whether your business is required to close as a result of local Coronavirus regulations. If your business is closed and staff are not working for a minimum of 7 days, then you’ll be eligible to place them onto to “JSS (Closed) Scheme”. The Closed Scheme provides the employees with two-thirds of their salaries up to a cap of £2,500. That income is paid entirely by the government with the employer not needing to contribute.
If your business remains open but faces reduced demand because of the pandemic, then the “JSS (Open) Scheme” will be applicable. The Open Scheme requires employees to work at least 20% of their hours at normal rates of pay. For the hours not worked, the employer is required to pay 4% of the typical salary and government funds 49% of the remainder (up to a cap of £1,541.75). That means the employee will take home 73% of their salary.
The scheme was due to start on November 1st, but has been postponed while the JRS has been extended to cover the renewed national lockdown period
One important factor to be aware of is that opting into these Business Funding schemes will impact how much you can claim using the typical Innovation Funding options laid out above. This is especially the case with R&D tax credits. We’ve written a short guide on combining Coronavirus Funding with R&D Tax Credits which we recommend reading if you plan to apply for both. We also recommend talking to your provider about whether your Coronavirus Funding will affect the amount you can claim under the other Innovation Schemes.
Bounce Back Loans
BBLs are quickly administered government-backed loans from an accredited private lender. The government provides a 100% guarantee to the lender, although each lender is required to enforce repayment of the debt.
The maximum amount available for a BBL is £50,000. The loans have a government-mandated interest rate of 2.5% per year and a 6 year repayment schedule. There is no personal guarantee required to apply for the loan. To be eligible however, you’ll need to provide evidence that your business has been negatively affected by the Coronavirus downturn.
As BBL claimants cannot claim any of the other Coronavirus Business Funding schemes, the £50,000 limit means that this scheme is most suitable for small or micro-businesses. The BBL scheme is set to close for new claimants on 31st January 2021.
As the government determines the schedule and interest rate, there won’t be a lot of variety in the terms that lenders are offering, but we still recommend comparing a few of them. The British Business Bank (“BBB”) website has the list of accredited lenders.
Coronavirus Business Interruption Loan Scheme “CBILS”
The CBILS is the next level of Business Funding provided by the government. To qualify for a CBILS loan, your business’s turnover should exceed £250,000, and you need to have 3 years of trading history. As with BBLs, you’ll also need to provide evidence that your business has been adversely affected by the Coronavirus downturn.
Loans between £50,001 and £5million are available. Loans above £250,000 will likely require personal guarantees. Interest rates vary significantly between lenders with reported rates being between 1.5-13%. The government will cover the first year of interest repayments.
The currently stated deadline for applications is 31st January 2021. The CBILS scheme is administered through over 100 private sector partners, and the terms will be different for each. We recommend that you conduct a thorough comparison of lenders before committing to a loan. Each lender has been certified through the BBB and the list of lenders can be found on the BBB’s website.
Launched in May, the FF aims to help businesses whose turnover figures don’t match the liquidity they need to fund their operations (so typically VC-backed fast-growth startups). This scheme is different from the others, in that it provides convertible loans, which means the government will be in a position to hold equity in a number of UK startups should the loans be converted.
The government delivers between £125,000 to £5 million, subject to private investors committing the same value. This means that at least £250,000 needs to be raised between the government and the private investor. Your business needs to be a UK-based startup or an overseas startup that has participated in an accelerator (e.g. Y Combinator), and who has a significant UK presence.
In addition to these criteria, the business must have raised at least £250,000 in equity from private investors in the last five years – that is before this FF raise. There are more criteria to read through on the BBB website. Applications are open until 31st January 2021.
Your primary investor will need to apply on your behalf. Seedlegals have the most straightforward guide to putting together an application.
Coronavirus Large Business Interruption Loan Scheme “CLBILS”
CLBILS is a version of the CBILS scheme which caters for businesses which have an annual turnover figure greater than £45m. As with the CBILS loan, this loan is adminsitered via a certified private lender but the government gives the lender an 80% guarantee for the debt. Participants can borrow up to 25% of their turnover, with a cap of £200million. Companies borrowing more than £50million may have their dividend payments and senior pay rates restricted.
To be eligible, the applicant’s businesses activities must have a significant UK economic presence, and they must generate more than 50% of their turnover from trading activity. Finance and insurance companies are not able to claim.
The CLBILS application deadline has been extended to 31st January 2021. As with CBILS, we recommend that applicants shop around to find the loan deal most suitable for their business. The BBB has the complete list of lenders.
Coronavirus Credit Financing Facility “CCFF”
The CCFF is a lending facility for the largest private and public companies to access liquidity. Unlike the other government-backed schemes, the Bank of England directly administers the CCFF.
To qualify, businesses should have investment-grade credit ratings (although the BofE asks that businesses that fall below this threshold get in touch). There is no publicly communicated maximum that a business can receive from the CCFF, although so far recipients have been granted between £25million-£1billion.
The Bank of England has indicated that the last date on which loans will be made under the CCFF will be 22nd March 2021. The CCFF will be closed to new applicants from 31 December 2020.
You should make the applications through your corporate banking partner. The issuance itself will be provided by the BofE. For more information, Allen & Overy have a good introduction to the scheme, and we recommend speaking with your corporate banking partner to understand if this is suitable for your circumstances.
RDEC Scheme Guide
The complete guide to compiling and submitting an RDEC claim. Includes an explanation of differences between the two schemes.
Software Development R&D Tax Credit Claims
Key insights into claiming R&D tax credits for software development projects.
Clarifying the Impact of CBILS on R&D Tax Credits
How the government's Coronavirus loan scheme affects your ability to claim.
Which costs qualify for R&D?
A breakdown of the types of costs that can be included in your claim.
EmpowerRD Covid-19 response
How we're helping businesses with their cash flow during the downturn.
Which scheme should I apply to?
Understand how your business's financial profile affects which scheme you need to apply to
Is my business eligible for R&D tax credits?
Find out if the activity undertaken by your business can qualify as R&D.
How much can I claim?
Read how different accounting positions can affect how much you're able to claim.
What evidence is required to make an R&D claim?
Learn about the different pieces of evidence required for different R&D costs.
The most common queries we hear about the R&D scheme.