The UK government offers a host of financial support to innovative businesses. But with so much funding available, which schemes should you to apply to? And when? GrantTree’s Government Funding Timeline has the answers.
The schemes you apply to depend on where your company is in its development, what it’s hoping to achieve over the next year, and, of course, it’s eligibility.
Here, in GrantTree’s Government Funding Timeline, we set out which government programmes are most suitable for businesses at each stage of their lifecycle, from newborn startup to soaring scaleup.
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Go to the funding for your development stage
Should I take public funding?
Some companies don’t want or need public funding. That’s perfectly fine. Many businesses have gone on to great success without taking a penny out of the public purse.
But be it grants, R&D Tax Credits, Creative Sector Tax Relief or the Patent Box, government-sponsored schemes offer a range of advantages to businesses of all sizes and industries. Here are just a few:
- Most public funding is non-dilutive, meaning you won’t sacrifice equity
- If you time it right, government funding can put you in a better financial position ahead of your next fundraise, helping you to secure more money for less equity
- Public financing could help you bridge the funding gap; where early-stage startups struggle to raise capital from private investors
There are risks, of course. You might sink time into an unsuccessful application, or face an audit or HMRC Enquiry for submitting an erroneous claim. But government funding is ultimately there to help you. And most schemes are generous enough to warrant your time and attention.
So, with that, let’s look at which schemes you should be applying to, and when.
Pre-Angel Investment
You are a young startup – just a few months old. But you have big plans and big ideas. You’ve secured your first capital from savings, family and friends, and you’ve used it to develop your MVP. Next on the agenda: securing Angel investment to really kickstart your growth.
Even at this early stage, there is a suite of public funding options open to you, which could help you secure that precious first round of investment.
Startup Loans
The Startup Loans scheme is a government-backed initiative offering favourable rates to businesses less than two years old. Founders can borrow between £500 and £25,000 over a repayment term of up to 5 years, at a fixed interest rate of 6%.
Applying for a Startup Loan is free. You will need to complete a relatively simple online form, and submit a business plan and cash flow statements. The Startup Loans’ website has a library of helpful resources on compiling these documents, if you need them.
Depending on how much startup capital you have, a Startup Loan can be a useful source of relatively inexpensive debt financing. The rates are more generous than those offered by high-street banks and other traditional institutions.
Innovation Grant Funding
Yes, even early-stage startups can qualify for grant funding.
Innovation grants exist to accelerate technological development; converting ideas into concepts, concepts into prototypes, prototypes into commercial products. Grant-worthy ideas can come from companies of any size, not just those that can shoulder millions in development work. Specifically, grants for early-stage companies are generally awarded for market and technical feasibility studies.
That being said, each competition looks for technologies at different readiness levels.
If you are seeking an innovation grant, the key is to keep an eye on what competitions are available from the main grant-awarding bodies. For UK companies, they are Innovate UK and the EU’s Horizon Europe, an innovation funding programme running until 2027. The two organisations regularly post new competitions, inviting companies from a variety of industries to submit their proposals.
Be sure to check out Innovate UK’s Smart grants in particular. They are sector-agnostic and popular among startups.
Winning a grant early on in your business’s life gives you much more than money. A grant is the ultimate source of external validation. It is a statement from a discerning and informed source that your technology has promise.
VCs and Angel investors think so, too. So, if you can win a grant early on, you’ll not only stand a better chance of attracting investment, you could do so on highly favourable terms.
Still, applying for a grant takes time. Most grants require lengthy submissions, which can take days, sometimes weeks, to write and fine-tune. Moreover, grant competitions have a much lower success rate than other kinds of public funding. Sometimes as low as 7%, depending on how many companies apply.
Is it worth spending the time on a grant application?
If you’ve just started a company, you’re probably spending every waking hour just trying to keep the wheels from falling off. The opportunity cost of your time is sky-high. Spending days on a grant you have a slim chance of winning is almost inconceivable.
But before you nix the idea altogether, you should do two things:
1. See what’s out there
Look at what grants are available and read their eligibility criteria carefully. Getting a clear picture of which competitions are open will help you understand your chances of winning a grant. Then you can calculate a rough ROI.
2. Talk to an expert
A grant consultancy will accurately assess your chances of success. If your chances are good, they can write your application for you, freeing you to focus on your business.
SEIS
The Seed Enterprise Investment Scheme – or SEIS – helps early-stage startups secure their first tranches of outside investment.
One of four widely-popular venture capital schemes, the SEIS works by giving private investors a range of tax reliefs on cash used to buy shares in fledgeling businesses. Investors must hold their shares for a minimum of three years to receive the full benefits of the scheme.
SEIS-qualifying companies can pocket up to £150,000 in investment – a meaningful sum in the first few years of business. SEIS eligibility is determined by how long your company has been trading for (under two years), how many employees you have (less than 25), your gross assets pre-money (under £200,000), and a few other criteria.
The tricky thing is, you won’t know whether your company qualifies for the SEIS until you’re completing your funding round. Similarly, investors won’t know whether they will receive tax benefits from the scheme until after they’ve put their money in.
This lack of visibility is a big problem. Luckily, HMRC has a handy workaround: SEIS Advance Assurance.
SEIS Advance Assurance
Advance Assurance is a ‘semi-binding’ declaration from HMRC stating that your company is eligible for the Seed Enterprise Investment Scheme.
Functionally, Advance Assurance is a way for you to find out whether you and your investors will receive SEIS benefits before the fundraise starts, solving the visibility problem mentioned above.
Advance Assurance is extremely useful when you’re trying to court investors, but it isn’t a full-proof guarantee. The assurance is only ‘semi-binding’ because, while HMRC generally abides by its assurances, it’s not required to by law. And bear in mind that some investors are ineligible for SEIS, too. It’s not all on you.
To apply for SEIS Advance Assurance, you need to complete this online form, and supply evidence about your financial situation and your raise. It’s all pretty straightforward, but it can take a while to gather the necessary documentation.
Remember this is a chance to really test your eligibility. So whatever you do, don’t dress up the information you provide. If anything, you want to undersell your eligibility. That way, if HMRC says you probably won’t be eligible for SEIS, you can make changes before the fundraise starts.
Working Towards Series A
You’ve secured your first round of funding. You now have the resources to invest in new bodies, space, and further development work. As you grow, and expand your development work, you’ll unlock a range of new funding schemes that can supplement your private capital.
Innovation Grant Funding
Whether you’re forging ahead with development work, gearing up for field testing, or developing a new product line, this is an excellent time to look at grants again.
As your technology matures – and moves up a readiness level or two – your eligibility for certain grants crystallizes in the eyes of their invigilators. Its use-case becomes more apparent, the underlying idea gains legitimacy, and it’s path to fruition becomes clearer. All this increases your chances of securing a grant.
Again, competitions open and close on a regular basis, so it’s essential to keep an eye open for grants that match your technology and its stage of development.
EIS
EIS stands for the Enterprise Investment Scheme. Like the SEIS, it provides tax reliefs to investors who buy and hold shares in growth companies. But while the SEIS is targeted at seed-stage startups, the Enterprise Investment Scheme is designed for more ‘established’ businesses.
This ‘design’ manifests as slightly lower levels of relief (30% income tax relief rather than 50%, for example), but a far higher ceiling for company eligibility, and the amount of money that be invested and received. A full list of eligibility criteria can be found on the EIS website.
| Benefit | EIS | SEIS |
|---|---|---|
|
Maximum you can raise |
£150,000 |
£5 million |
|
Pre-Money gross assets cap |
£200,000 |
£16 million |
|
% of investment that can be claimed as income tax relief |
50% |
30% |
|
Max. exposure after loss relief |
27.5p per £ |
38.5p per £ |
|
Age ceiling for company eligibility |
Trading for less than 2 years |
Less than 7 years since first commercial sale |
Should I use the EIS?
In short? Yes.
Many angel and seed investors won’t invest in companies that aren’t eligible for the EIS. So it is a really important scheme for startups looking to complete a Series A round or secure some extra capital.
EIS Advance Assurance
HMRC offers Advance Assurance for the EIS scheme. This is highly appealing to potential investors.
As with other kinds of Advance Assurance, applying is a simple matter of providing HMRC with various information about your business. In this case, details about your upcoming fundraise are particularly relevant.
You can apply for Advance Assurance using this form.
R&D Tax Relief - SME Scheme
As you approach Series A, the money, time and energy you’re investing in development work will go through the roof. That can only mean one thing: it’s time for R&D Tax Relief.
Also called R&D Tax Credits, this scheme promotes innovation by offering financial incentives to companies conducting R&D.
The scheme works by reimbursing businesses up to 33% of their development costs, either as a corporation tax reduction, a tax rebate, or a cash lump sum if they’re unprofitable.
While innovation grants are usually only available to companies in science or technology-related fields, R&D Tax Relief is available to businesses in a wide variety of sectors, from food to fashion, manufacturing to medicine. All that matters is that the company meets the government’s particular definition of ‘R&D’ for tax purposes.
R&D Tax Relief is split into two ‘sub-schemes’: the SME R&D Tax Relief and the Research and Development Expenditure Credit (RDEC).
More on whether you need to apply for SME R&D Tax Relief or RDEC here.
When should I file for R&D Tax Credits?
We strongly recommend applying for R&D Tax Credits as soon as your financial year ends. That’s the best way to get your money quickly.
All told, you have up to two years to claim tax credits on your development work. But if you need money soon, you should file straight away.
If you are moving towards a Series A, it’s a good idea to time your tax credit payout to when prospective investors are performing their due diligence. A well-timed cash injection will make your financials more appetising.
How do you time the cash injection?
HMRC looks to process about 95% of claims in 28 working days or about five and a half weeks. It often takes much longer, though. And there are certain times of the year, like tax deadline season (December to February), when processing can take as long as three months.
If you want to play it safe, assume you’ll get your tax credits eight weeks after you file. Work backwards from there, calculating when the money needs to be in your account.
There are also ways to get your money sooner.
Are R&D Tax Credits worth it?
Almost certainly. R&D Tax Relief lets companies recoup a large portion of their eligible development costs. Unprofitable companies can claim more (33%) than profitable ones (27%), so it’s even more beneficial for businesses which are pre-revenue or pre-profit.
The application does take time, though, especially if your development work is extensive or particularly sophisticated. And because the scheme’s vast documentation leaves lots of room for interpretation, we often see companies miscalculating or deliberately downsizing their claim size to avoid repercussions from HMRC.
The best way to avoid problems is by working with a specialist. You can also mitigate some of your risk applying for Advance Assurance.
R&D Tax Relief - Advance Assurance
Advance Assurance for R&D Tax Credits works in much the same way as it does for EIS and SEIS: You present HMRC with some information, they assess it, then they provisionally confirm whether you are eligible for the relevant scheme. In this case, you are presenting your development work.
Advance Assurance for R&D Tax Credits is only available to companies who claim it ‘within the first 3 accounting periods’ – the first three years the business has been running, basically. Also, it’s only available to companies applying to the SME scheme. SMEs required to claim for RDEC can’t file for Advance Assurance.
How do I apply?
You can apply for Advance Assurance using this form. You will need to provide some basic information about your company, plus a detailed account of the R&D work you’ve conducted so far.
Remember, this is no time for sugarcoating. Advance Assurance is your only chance to get a frank assessment of HMRC without risking a penalty.
Creative Industries Tax Relief
Creative industry tax reliefs are designed specifically for companies working in artistic industries. There are eight tax reliefs in total, available to companies producing:
- Video games
- Films
- High-end television
- Children’s television
- Animation television
- Theatrical productions
- Orchestral concerts
- Museum or gallery exhibitions
Much like R&D Tax Credits, Creative industry reliefs work by refunding a portion of eligible costs as a tax reduction or a cash lump sum. The size of the relief varies from 20% to 25%, depending on the industry, and whether the applicant is profitable or loss-making.
The Cultural Test
To receive this creativity-focused benefit, you need to pass a ‘cultural test’. Administered by the British Film Institute (BFI), the cultural test determines whether your product can be ‘certified as British’. In other words, whether its characters, settings and subject matter embody British culture.
You must pass the cultural test, and receive either an interim or final certificate from the BFI, before claiming the tax credit. You must also include this certificate with your tax return.
For a tech-focused company to claim one of these reliefs, it will probably be working in video game development or special effects for movies or television. As with R&D Tax Relief, Creative industry tax reliefs become more relevant, and more generous, the more you invest in development work.
Creative industries tax credit and R&D Tax Credits
Companies cannot claim Creative industries tax relief and R&D Tax Credits through the SME scheme for the same project. The SME scheme and Creative industries tax relief are both forms of state aid, meaning, under EU rules, they can’t be claimed together on the same work.
However, a company can claim for R&D and creative industries tax relief if they claim under RDEC instead. RDEC isn’t classified as state aid, meaning the two schemes are compatible.
There is one exception: Video Games Tax Relief. VGTR cannot be claimed for any expenditure that qualifies for R&D Tax Relief. However, by working with a tax credits professional, you could take advantage of both schemes.
Series A to Series B
You’ve completed your Series A fundraise. You’re now an established startup, well on the way to scaleup territory. With a healthy supply of working capital, it’s time to double-down on your product, smash some ambitious targets, and expand beyond Britain’s borders.
Private investment will help you on your way. But as you grow, so does the public innovation funding you could access. Here are the schemes you should be looking at.
R&D Tax Relief - SME Scheme
If you want to grow your business, add new features or services, and attract attention from prospective investors and buyers, you’ll probably need to keep innovating.
The good news is that your R&D Tax Credits claim will grow more-or-less proportionately to your development expenditure, meaning even more money to reinvest in staff, equipment, marketing and even more claimable development work. This creates a virtuous cycle of expenditure, relief, reinvestment and, ultimately, growth.
But it’s not all sunshine and tax credits. As your claim increases, it will receive more scrutiny from HMRC. So it will be even more important to make sure you’re submitting a flawless application, accompanied by an airtight technical narrative detailing your development work.
The Patent Box
The Patent Box is a generous but underutilised scheme that allows companies to convert IP into a recurring relief on their corporation tax bill.
The scheme delivers a deduction on taxable profits generated by patented technologies and concepts. Instead of the usual 19%, eligible companies pay just 10% tax on sales of patented products, royalties, damages and related activities.
If you are ‘exploiting’ a patent, and are liable for corporation tax in the UK, there’s a good chance you’ll be eligible for the Patent Box. Though there are a number of other criteria to consider.
There is a slight downside in that calculating Patent Box relief often requires complex, time-consuming calculations to disentangle eligible income from ‘routine’ profits and marketing activities.
But the rewards are generally worth it. The Patent Box offers a valuable and often substantial source of additional capital for profitable companies. It also allows growing companies to do something they ordinarily struggle with: monetize their patents.
Creative Industries Tax Relief
You can continue to claim Creative industries tax relief for every year your eligible work continues. If you are planning to claim every year, make sure you keep comprehensive notes to speed up the process.
Remember, though, that Creative industries tax relief isn’t always compatible with R&D Tax Credits.
Series B to Exit
While revenue and investor capital may be your primary fuels for future growth, public funding can still play a pivotal role in helping you towards an exit, or another mega-round of investment.
The Research and Development Expenditure Credit (RDEC)
Another year of innovation means another serving of tax credits. But as your business grows, you might soon find that ‘outgrow’ the SME scheme and will have to file through RDEC instead.
The RDEC and SME schemes differ significantly. Enhancement rates – the operative mechanism in SME claims – no longer apply. Instead, RDEC pays companies a credit worth 13% of their eligible costs. This tax credit is subject to corporation tax, however, meaning a final payout worth 10.53%.
Speaking of eligible costs, what you can claim for, and how much you can claim, will also change. You will no longer be able to claim for subcontractor costs paid to limited companies.
However, RDEC does allow you to claim R&D Tax Relief on projects that have already received a form notified state aid, such as a grant or the Creative Industries Tax Credit.
This allows companies to perform ‘RDEC/SME split’, where they divide their claim across the different schemes to maximise their relief. The split is quite a complex procedure though, and would probably require the help of a specialist.
Despite these adjustments, the R&D Tax Credits scheme can remain a handsome source of extra cash and a meaningful way to de-risk your development work.
If you are going to claim tax credits every year, try this simple tip to save you time and money.
The Patent Box and Creative Industries Tax Relief
Like R&D Tax Credits and the Creative industries tax relief, Patent Box relief can be claimed every year a company generates eligible revenue.
Conclusion
From garageband startups to galloping unicorns, there’s a whole universe of public funding available to innovating companies. If you put in the hours and file flawless applications at the optimal moment, you could potentially claim millions of pounds over your company’s lifetime.
But public funding provides more than just money. It can help your lure investment, temper economic turbulence, and gain prestige as a true innovator. Time to get those applications in!
Questions?
We hope you found this guide useful! If you want to learn more about R&D Tax Credits, VGTR or Innovation Grants, or find out whether you’re eligible for either scheme, then do get in touch.
Our experts would be happy to help!
