AA Thornton’s guide to Government Grants, Loans and Tax Relief for Innovative SMEs and Start-ups

There are many grants available to innovative small businesses, and a wealth of funds available. There are various cash grants as well as tax relief options and loans to encourage innovation that can be explored, as highlighted in this guide.

Many SMEs and start-ups are put off applying for grants, considering the process to be too complicated. In fact, the process has been simplified as much as possible, and lots of help is available. The grants, loans and schemes are geared towards different types of company at different times in their lifecycle. They are aimed at both innovative SMEs and start-ups themselves, and also at investors who may wish to invest in innovative companies.

This guide identifies some of the various government grants that are available and explains how they are relevant to SMEs and start-ups, and where further information can be found.

The GOV.UK website provides links to the various Government schemes, many of which are aimed at start-ups and SMEs. Some of these schemes are described below.

Tax Relief Schemes

Several tax relief schemes aimed at investors are available that incentivise investing in SMEs and start-ups through the tax system. These schemes benefit SMEs and start-ups as it means that a greater pool of investors and funds is made available. SMEs and start-ups could approach potential investors and tell them that their business is eligible for investor tax relief, and thus make themselves more attractive. Tax relief schemes aimed at SMEs and start-ups directly are also available.

SEIS (Seed Enterprise Investment Scheme)

SEIS is a tax relief scheme aimed at investors, but which also benefits start-ups who have been trading less than two years, and who have less than £200,000 of assets. Through this scheme, start-ups may be able to attract investment of up to £150,000. Investors can claim back up to 78% of their investment through tax rebates in the first year.

Through SEIS, the start-up must first secure funding from an investor and issue shares in respect of that funding. The start-up then applies to HMRC to join the scheme. If successful, they are provided with forms to give to the investor who can then claim tax relief.

Details of the scheme can be found here.

EIS (Enterprise Investment Scheme)

For later-stage SMEs there is the equivalent EIS, under which the SME can receive up to £5 million in funding each year.

The maximum that can be received is capped at £12 million in the SME’s lifetime. This cap also includes amounts received from other venture capital schemes.

As with SEIS, the scheme works by offering tax incentives to investors (up to 30% back in tax up to £1million) who purchase shares in the SME.

For a detailed overview, please see the HMRC guide here.

Research and Development (R&D) Tax Credits

Tax credits are also available directly to an SME or start-up if it is involved with the research and development of a project that seeks to make an advance in science or technology.

Through R&D Tax Credits, a company can claim back some tax on development costs which includes staff/contractor costs and also costs for unsuccessful projects that do not get off the ground.

The credits take the form of SME R&D Relief for SMEs or Research and Development Expenditure Credit (RDEC) for larger companies or for SMEs subcontracted by larger companies. A link to both schemes and the qualifying criteria can be found here.

Patent Box

The Patent Box is relevant to SMEs and start-ups who have patent rights. It is an opt-in scheme that enables UK-based companies to apply a reduced corporation tax rate of 10% on a substantial part of the worldwide profits arising from selling patented products, using patented processes and exploiting patents. The patents must have been granted by the UK Intellectual Property Office (UKIPO), the European Patent Office (EPO) or the national patent offices of certain EEA states.

Further details can be obtained in our guide here or the GOV.UK page here.


Innovate UK

Innovate UK are the UK government-fronted innovation agency and provide significant government funding in different forms, outlined below.

You can find out more on the Innovate UK page here 

  • Competitions

Funding is awarded on a competitive basis, as a result of technology competitions run twice a year. The funding competitions provide funding between £25,000 and £10 million for projects which investigate proof of concept, create new or improved products, processes and services and develop prototypes.

The list of current competitions can be found here.

  • Innovation Vouchers

Innovation vouchers provide grants of up to £5000 for SMEs and start-ups specifically to be spent on expert advice. Applicants merely have to need specialist help to meet a business challenge but must not have previously worked with the knowledge supplier. The expert advice could for example come from a designer, business consultant or intellectual property advisor such as a patent or trade mark attorney.

Further information can be found here.

Horizon 2020

Horizon 2020 is an EU-based fund designed to support SMEs all across Europe, though it is unclear whether this funding will continue post-Brexit. Funding is granted through a number of UK government agencies and organisations.

To apply for most Horizon 2020 funding, you must be a consortium made up of at least three organisations from different EU Member States or Associated Countries. The sort of projects for which funding is available include ground-breaking research or new technologies; improvements in research training and development; growth creation schemes in sectors such as advanced manufacturing, materials, biotechnology, information and communication technology, nanotechnology and space; or responding to challenges such as climate change, food security or healthcare for an ageing population

Further information can be found here.

Government Loans

Start Up Loans

A Start Up Loan is a government-backed personal loan available to individuals looking to start or grow a business in the UK. Twelve months of free mentoring and exclusive business offers are also offered to the loan recipients.

The loan is unsecured, with a fixed APR of 6% and a 1-5 year repayment term. Applicants may borrow from between £500-25,000 and all owners or partners in a business can individually apply for the full loan, with a maximum of £100,000 available per business. Applications for the loan are judged on the criteria of credit worthiness, personal affordability and business viability.

Further information can be found here.

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