Grant Funding & R&D Tax Credits

When you’re out on the cutting edge, money matters. Innovating to make your business more efficient, effective and sustainable takes strong planning and solid funding. That means you need to look harder and further for finance options, and to understand exactly which of them fit you best.

There’s a general assumption, for instance, that innovation grant funding and R&D Tax Credits are an either/or proposition. That’s not exactly true, though – and it’s a belief that costs innovative businesses serious money and puts promising projects at risk. Here’s what you need to know:

What kinds of UK innovation funding are on offer?

Funding options designed specifically to reward innovation break down into 2 basic types: grants and tax credits. Both systems have their own benefits and eligibility requirements, but it’s important to note that opting for one doesn’t necessarily mean slamming the door on the other.

Innovate UK, the UK’s innovation agency, is in the business of pumping much-needed cash into the country’s most inventive companies and biggest ideas. Innovate UK is actively looking for projects that offer a really new and different approach – but don’t make the mistake of thinking this means you need to be designing a whole new product. Refining existing techniques to be demonstrably better or “greener” is every bit as important an innovation.

The grants you could qualify for will obviously depend on a range of factors, but they can be applied to everything from early-days studies and market research right through to actual product development and testing. Depending on what you qualify for, you could be looking at a grant of anywhere between £25,000 and £10 million.

R&D Tax Credits, while still offering a major boost to innovative businesses, work very differently. Depending on the version of the scheme you qualify for, you could find yourself with a tax credit worth:

• Up to 33% of your qualifying costs if you’re on the SME scheme.
• A tax credit worth 12% of your qualifying costs for firms using the RDEC scheme.

The SME scheme mainly applies to smaller firms with under 500 staff and a turnover below €100 million. Larger businesses use the less generous R&D Expenditure Credit (RDEC) system, although there are wrinkles in the rules that can affect your eligibility so it’s a good idea to get professional advice on where you stand before applying.

What’s the same?

Well, for one thing, both types of funding will expect you to demonstrate that what you’re doing qualifies as R&D. That means you’ll need to show that you’re expanding the horizons of what we know or can accomplish in a technical field. You’ll also need to show you’re putting your money where your mouth is. Innovation grants and R&D Tax Credits won’t come flowing into your business just because you’ve had an idea. The government wants to see you actively trying to bring that idea to life. You don’t necessarily have to succeed in your project’s goals, but win or lose you need to be putting the work and money in.

What’s different?

One of the major differences between grants and tax credits is when you get the money. A grant will generally be paid every 3 months in arrears, potentially before you’ve had to fork out for your project’s major costs. R&D Tax Credits, on the other hand, come in the form of tax relief on money you’ve already spent. It’s a swings-and-roundabouts deal in that respect: you won’t get your tax credits until you’ve already spent your money, but a grant can often leave you waiting for the cash to roll in before you can actually get to work.

How do they work together?

Weirdly enough, while grants and tax credits can grind against one another in certain respects, there are actually a few ways where they work well together. If you’re awarded a grant for innovation, for example, you’ve already demonstrated that you’ve cleared one of the largest R&D Tax Credits hurdles. You projects have essentially already been accepted as suitably innovative, which is a strong statement to make in a tax credits claim.

However, there’s a pretty big catch to watch out for. Because the SME scheme is so generous, it counts as “notified State Aid” – as will most kinds of grant, unless they’re considered De Minimis as these do not count as state aid.

This will disqualify you from claiming both at the same time. Despite this, even if you’ve been awarded a grant you could still have an R&D Tax Credits claim to make under the RDEC scheme. As already noted, RDEC’s a little stricter than the SME system - but it’s still very much worth claiming if you qualify for it. Better still, even if your State Aid grant prevents you from making a tax credits claim under the SME scheme, the money you got from it still can still count toward your qualifying expenditure in your RDEC claim.

Innovation grants and R&D Tax Credits are complicated areas that are often misunderstood. The main thing to grasp is that the UK government is committed to making innovation pay off. The trick to fulfilling that commitment is to understand exactly what you qualify for in the first place, and to crunch the numbers to find the best combination of options for your projects.

Get credit for your business innovation with research and development tax credits claim assistance from RIFT. Find out more about types of HMRC R&D tax credits, deep dive into the world of business innovation with our insights, or contact RIFT R&D today to find out how we can maximise your benefits.