A little healthy competition: what are the differences between Innovation Grants and R&D Tax Credits?
Share on facebook
Share on twitter
Share on linkedin

Innovation Grants and R&D Tax Credits: What’s The Difference?

So what’s the difference between an innovation grants and the R&D Tax Credit?

We talk a lot about both in this blog and you’d be forgiven for thinking that they are essentially interchangeable. In fact, they are worlds apart. The main differences fall into four categories: who the money comes from, how the money is allocated, the types of projects that are rewarded, and how much money is at stake. That’s a lot to take in at once so let’s look at these points one by one.

The money comes from different places

The R&D Tax Credit comes directly from the HMRC. They are paid in the form of a cash payment to companies whose R&D Tax Credit exceeds their Corporation Tax liability and a reduction in Corporation Tax when it doesn’t. Claims can also be paid in cash and credit.

In the UK, most publicly funded Innovation Grants stem from Innovate UK a non-departmental government organisation who are tasked with ‘finding and driving the the science and technology innovations that will grow the UK economy.’ They are an agency employing around 300 staff, most of them with a strong background in business, technology and or academia. While both types of funding are linked to the UK Government, Innovate UK have far more independence in terms of who they allocate funding to.

The money is allocated differently

As we’ve already mentioned, R&D Tax Credits take the form of a reduction in Corporation Tax and or cash payment relative to qualifying expenditure. The claim is made as part of your Company Tax Return (or amendment to) and must be filed within two years of the time period being claimed for. R&D Tax Credits are retrospective, meaning that you claim for costs  you have already incurred. Full details of how to claim can be found here.

Unlike the R&D Tax Credit, Innovate UK grant funding is all about work you are intending to do. If successful with an application, the costs of your project will be reimbursed relative to the particular competition’s intervention rate, i.e. the percentage value to which Innovate UK are funding your project, on a quarterly basis.  Innovate UK runs funding competitions throughout the year and organisations  are invited to pitch projects that they believe to be in scope.  Typically between three a five individuals with relative expertise will assess each project and projects are funded on merit relative to the criteria of the given competition.  A full list of currently live competitions can be found here.

Different types of project are rewarded

In terms of the R&D Tax Credit, the scope for eligible projects is wide. You can claim for any project that ‘seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty. ‘Uncertainty’ is defined as seeking knowledge that was ‘was not readily deducible by a competent professional’. That is to say, you must be trying to solve a problem which doesn’t have an immediately obvious solution. The project must also relate to your company’s trade and be scientific in nature. Advances in the arts or humanities are excluded.

Broadly speaking, Innovate UK competitions cover four key technology areas, which are Emerging and Enabling Technologies, Health and Life Sciences, Infrastructure Systems and Materials and Manufacturing. Each competition has an exacting scope that specifies elements such as specific technologies areas, a desired outcome in terms of the problem an applicant’s project supposes to solve, project cost and length, categories of partner such as commercial and or academic and on occasion start and finish dates.

Different amounts of money are at stake

Both types of funding can be very lucrative.

R&D Tax Credits are paid as a percentage of your total R&D spend, a relatively complex set of accounting treatments are performed and the end result is that most SME’s receive a tax benefit between 18 and 33% of eligible expenditure. Large companies, meanwhile, receive 9.7%. According to The Telegraph the average SME payout across the UK currently stands at around £50,000

According to their 2016/17  Delivery Plan, Innovate UK have an annual budget of £561 million which is divided amongst projects in four main areas. The amount allocated for each competition varies but it tends to be quite a sizeable amount. For example, the current Emerging and Enabling Technologies competition allows companies to apply for a share of £25 million via projects costing between £35k and £2 million.  

Don’t go it alone!

By now you’re probably getting an idea of which type of funding is right for you. Are you looking to cut your Corporation Tax for last year with R&D Tax Credits or do you want to apply for funding for an ambitious long-term project from Innovate UK? Either way, your application needs to be detailed and robust.

In the case of R&D Tax Credits, you’ll need to present a strong case to HMRC and prove that your activity over the last two years qualifies for Tax Relief. This means providing accurate accounts of all R&D spending.

If you want to impress Innovate UK you’ll have to really pull out all the stops. Because the grants are handed out competitively, you’ll need to prove not only that your project is eligible, but that your project is more deserving than rival projects.

Whatever you decide, we can help. We have experts on hand who have years of experience with both R&D Tax Credits and Innovate UK grants. We’ll guide you through the process and make sure you have the best possible chance of success.

Get in touch today and let’s get started.