Guide to small business grants in 2023

Small business grants are a type of financial support typically received from the government. They cater to small to medium-sized businesses, like startups or scale-ups, who want assistance with growth and expansion. Unlike business loans, grants are awarded and do not have to be repaid.

Businesses generally must meet specific conditions to qualify for a UK business grant. For example, the company might need to satisfy specific innovation criteria or be based in a particular area. Also, the money from the grant can have multiple purposes; these areas could include R&D, hiring new employees, marketing and advertising or product development.

This guide will focus on, but not be restricted to, the major grants available to innovative businesses of every size: from sole traders to multinationals. And provide advice on the best ways to source and apply for grants.

We have also included some of the government’s best loans and equity options as alternative funding sources in addition to grants.

Before we get going, here are 7 top tips to get you started on your grant application process:

1. Check the eligibility criteria first and make sure you meet all the requirements.

2. Have a clear and detailed business plan before applying for grants. This will make it easier to put together a convincing case for why your business deserves the grant money.

3. Start your search early and allow yourself plenty of time to develop a robust application. Some grant programs have very competitive selection processes, so the sooner you start, the better.

4. Be prepared to provide documentation to support your case for why your business should receive the grant money. This could include financial statements, tax returns, business licenses, and other similar materials.

5. Pay attention to the deadlines for each grant scheme you’re interested in, and submit your application before the cutoff date.

To help navigate this section, we’ve organised the types of small business grants according to their stage in the innovation lifecycle. First, we look at Ideation Stage schemes, which apply when planning or researching your innovation. We then look at the Product Development and Commercialisation stage schemes.

While it’s more likely that small UK businesses will benefit from Ideation and Product Development Stage Grants or funding, that is not exclusively the case. Large and established companies can engage in innovation projects which qualify for early-stage funding schemes, even if their core business is mature. Therefore, knowing your company’s innovation projects is essential before identifying suitable funding.

Local grants and funding

We suggest that every founder identifies relevant local funding schemes as soon as they register their business. There are over 150 local grants or loans available in the UK. They can be on various levels, i.e. country, region, county or city. 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).

England

England has a network of 38 Growth Hubs designed to provide support, resources and funding for over 4.7 million businesses across the country. This network of Growth Hubs is a local public/private sector partnership led by Local Enterprise Partnerships (LEP), which help the local economy with job creation and funding, among other things.

The LEP has a local Growth Hub Contacts finder, which includes links to all 38 hubs across England. Growth hubs are local organisations that help businesses connect with resources and opportunities.

They don’t usually provide funding directly, but they may be able to introduce companies to other funding programs through their networking and support activities.

Northern Ireland

For small to medium-sized businesses (SMEs) in Northern Ireland, there is access to Invest Northern Ireland, an organisation that works closely with local authorities in NI.

The organisation aims to grow the local economy by helping new and existing businesses compete internationally and attracting new investment to Northern Ireland. They also provide various funding for businesses in Northern Ireland, including grants for R&D or small business loans.

Wales

Regional grants In Wales are available through government agencies like Innovate UK. There is also a finance finder website called Business Wales.

Alternatively, there is the Development Bank of Wales, which provides business funding like small business loans.

Scotland

If you own a business in Scotland, you could be eligible for grants from the Scottish Growth Scheme or Scottish Enterprise.

Other organisations provide business funding, including Business Loans Scotland and the Scottish Venture Fund.

Own business local authority create jobs funding small businesses capital investment projects provide business funding job creation.

Innovate UK Grants

Innovate UK is 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 mainly 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 upon with the 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 complete list of grants on the government website.

Grants can range from £25,000 to £ 2 million, depending on the grant applied for. You’ll need to make a joint application with another business for some of the grants.

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, it’s worth contacting their team, as they run several workshops to help with your application.

EU Funded Grants

Despite Brexit, the UK has continued its involvement in the Horizon Europe grants framework. Horizon Europe will deliver €96 billion of innovation funding to projects across the EU and associated countries until 2027.

There are numerous strands to the Horizon Europe framework, but the most relevant for UK startups is the European Innovation Council and SMEs Executive Agency (EISMEA). This body offers grant funding to innovative SMEs as a standalone organisation or in a consortium with other organisations.

EISMEA offers grants linked to specific missions, such as stable debt collection services or affordable housing. They also have more regular open calls, such as those provided through the EIC Accelerator.

There are numerous agencies affiliated with the Horizon Europe scheme, each of which will offer different forms of financial support. You must consult an authorised expert to help navigate through the different funds available.

The government has a list of recommended contacts to help organisations access the Horizon Europe scheme. For SMEs, they recommend speaking with Innovate UK EDGE (a government-funded delivery partner). Be sure to check the broader list, however, as the best point of contact for your industry might be elsewhere in the UKRI (the UK’s primary body for innovation funding).

R&D Tax Credits

The UK government’s R&D tax credits scheme is designed to stimulate innovation in the UK economy. The program provides UK businesses with either a cash credit or corporation tax deduction to compensate for up to 33% (April 2023) of their research and development costs.

The scheme is available to businesses in all sectors, as long as your activity counts as R&D. So if you’re developing new products, services, or processes; or modifying old ones, you may be able to make a claim.

The R&D tax credit is awarded after the R&D costs have been incurred. In that respect, it’s different from a grant 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 your R&D costs for that prior financial year.

With the scheme evolving fast, including new R&D tax rate changes and additional qualifying criteria due to take effect in April 2023, it’s smart to seek expert advice from a specialist when compiling your claim. A specialist will help ensure that your claim is successful and that you’re claiming the most credit you can. Determining which costs to claim against can get quite tricky, especially as you grow.

Still uncertain if you are eligible for R&D tax credits? Our Ultimate Guide provides you with the most recent information on the scheme and what makes someone qualified. Moreover, it’s a great way to get an idea of how much you can claim.

Creative Industries Tax Relief

The creative industry tax reliefs are a group of 8 Corporation Tax reliefs that allow qualifying companies to increase their allowable expenditure, lowering the amount of Corporation Tax the company needs to pay.

Additionally, if your company is loss-making, you may be able to surrender some or all of your losses for a payable tax credit.

To apply, companies must:

• Be liable to Corporation Tax
• Directly take part in the production and development of qualifying activities
• And, in some instances, pass a cultural test.

Cultural test

All films, animation, television programmes, or video games must be certified as British before qualifying. To do so, they must pass a cultural test or receive qualification through an internationally agreed production treaty.

The BFI (British Film Institute) manages certification and qualification on behalf of the Department for Digital, Culture, Media and Sport. They will issue:

• an interim certificate for uncompleted work
• a final certificate where production has finished

Unlike the others, theatrical productions, orchestral concerts, and exhibitions don’t have to undergo a lengthy cultural test.

What creative reliefs can you claim?

The following 8 reliefs may apply to your Company Tax Return:

• Film Tax Relief
• Animation Tax Relief
• High-end Television Tax Relief
• Video Games Tax Relief
• Children’s Television Tax Relief
• Theatre Tax Relief
• Orchestra Tax Relief
• Museums and Galleries Exhibition Tax Relief

R&D Capital Allowances

These are similar to R&D tax credits, but capital allowances allow for money back on assets that aid innovation rather than staff and expendables. The scheme offers 100% tax relief on capital expenditure, contributing to your innovation. Any UK business is eligible to apply. The commercial activity must meet the government’s standard of innovation set out in the requirements of R&D tax credits.

This is widely used amongst manufacturers who 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 apply to you.

Patent Box

This tax reduction is designed to reduce the significant costs of 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 changed 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.

R&D Tax Credit Advanced Funding

While Advance Funding isn’t technically a small business grant, it is a safe short-term loan on your R&D tax credits. As discussed above, 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.

In 2022, the average duration of time between a submitted claim to HMRC and the payment being cleared has increased, with the waiting time being 75 days in June. While HMRC states that standard processing times are down to around 40 days, this waiting period can still pose difficulties for businesses.

This is why we’ve seen a rise in businesses choosing 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”).

Read our Guide on R&D Advance Funding to learn more.

Innovate UK Loans

We find that most high-growth businesses will overlook the potential for financing as a means of expansion 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. Depending on your individual requirements, they deliver between £100,000 and £ 1 million. 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.

During Coronavirus, Innovate UK changed the purpose of these loans to support businesses struggling with a loss of income. It’s not entirely clear whether they are now available on a widespread basis. We recommend speaking with Innovate UK EDGE to find out more.

Government Venture Schemes

Although government venture schemes do not fit perfectly into the category of small business grants, it would be wrong to leave out venture schemes like SEIS and EIS that are offered by the government.

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two UK government incentives supporting innovation.

SEIS

SEIS is focused on early-stage businesses and is designed to help them secure their first bit of outside investment.

It offers private investors tax relief to buy new shares in your company. Individual investors will also receive capital gains tax exemption after holding onto their shares for a minimum of three years. Through SEIS, you could receive a maximum of £150,000.

HMRC has stated that the companies that can use the scheme must:

• Have carried out a new qualifying trade.
• Be established in the UK.
• Not be trading on a recognised stock exchange at the time of the share issue.
• Not have arrangements to become a quoted company or a subsidiary of one.
• Not control another company unless they are a qualifying subsidiary.
• Not have been controlled by another company since the date your company was incorporated.
• Not have grossed over £200,000 when the shares were issued
• Not be a member of a partnership.
• Have less than 25 full-time employees in total when the shares are issued.

Read here to learn everything you need to know more about the SEIS Scheme.

EIS

EIS is similar to SEIS but focuses on more established businesses, usually medium-sized startups. It allows the individual investor to invest up to £1 million per tax year and receive a 30% tax break per year. Like SEIS, individual investors will also receive capital gains tax exemption after holding onto their shares for a minimum of three years.

Through SEIS, your company can raise up to £5 million yearly and a maximum of £12 million in your lifetime. This total of £12 m also includes any amount from other venture capital schemes. Your business can receive investment through EIS as long as you are within 7 years of your first commercial sale.

Eligibility for EIS is similar to the SEIS, with a few differences in gross assets and staff size requirements. The company must:

• Not have gross assets worth more than £15 million before any shares are issued and not more than £16 million immediately afterwards.
• Have less than 250 full-time equivalent employees when the shares are issued.

Read here if you need to know more about the EIS Scheme.

SEIS and EIS Advance Assurance

Most investors will need advance assurance that you are eligible for SEIS or EIS funding. To do this, you must apply to HMRC before offering up SEIS or EIS investment opportunities to investors.

To apply, you will need a range of different things, these being the most important:

• The details of at least one proposed investor
• A business plan
• A 3-year financial forecast
• A copy of your latest accounts
• A cover letter

You can find a list of everything you’ll need to apply for advance assurance here.

Government grants and alternative funding provide valuable opportunities for businesses to secure financial support for their innovative projects and facilitate their growth and success. By understanding the eligibility criteria, developing strong applications, and exploring the available options, businesses can increase their chances of accessing the funding they need to thrive in today’s competitive UK landscape.

Get in touch today with one of our experts if you think you might qualify for R&D tax credits.