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Five funding opportunities UK businesses may be unaware of 

248 - Finance Digest │ Financial Literacy │ Financial PlanningBy Nigel Holmes, Director, Research and Development at Ryan

Sales, profits, customer service—these things are normally high on the agenda as businesses try to grow their bottom lines. But what about innovation? This secret ingredient is often overlooked, yet it has the potential to turbocharge a business. The best part is there is financial help available in the UK that rewards companies for being innovative.

Tax is paid to the government, but too few businesses are aware of what they can get in the form of grants and tax incentives for participating in economic growth. These cover a huge number of industry sectors, from artificial intelligence (AI) and bioscience to more traditional sectors like agriculture and food and beverage. In fact, tax relief and grants are claimed by companies operating in sectors as diverse as construction, software, and renewables, among others.

Research and development (R&D) tax relief is one such tax relief scheme that was introduced by the government to reward businesses for undertaking innovation. Despite awareness starting to increase, there are still some small businesses that don’t know about the scheme or understand it enough to make a claim.

To take advantage of the initiatives, businesses must first know what’s on offer. Here are five examples of funding opportunities that motivate businesses to focus on growth and innovation:

  1. R&D Tax Relief

R&D tax relief can be claimed by companies that are seeking a scientific or technological advance and working to overcome a “scientific or technological uncertainty.” It can even be claimed on unsuccessful projects. The work must relate to the company’s trade but should aim to benefit the overall field. There are two types of R&D relief: small to medium enterprises (SME), for companies with less than 500 staff and a turnover of under €100 million or a balance sheet total under €86 million, and Research and Development Expenditure Credit (RDEC), for large companies.

The government recently announced changes to how much businesses can claim. These have come into effect in April 2023 and are included here in brackets. SME R&D relief allows companies to deduct an extra 130% (86% from April 2023) of their qualifying costs from their annual profit. If the company is loss-making, they can claim a tax credit worth up to 14.5% (10%) of the surrenderable loss. Meanwhile, the RDEC is worth 13% (20% from April 2023) of a company’s qualifying R&D expenditure.

  1. Patent Box Relief

Patent box tax relief encourages companies to develop new patented inventions that are registered in the UK, the EU, or certain European countries. The tax relief is effectively a discount on a company’s corporation tax rate, reducing it to 10% of relevant profits. Companies that are able to claim this relief are likely to be eligible for R&D tax relief too. Government figures show that, in 2020–2021, about 1,535 companies claimed patent box relief, with the total value of claims estimated to be £1.2 billion.

  1. Innovate UK Funding

Innovate UK is the UK’s national innovation agency. It offers businesses in all sectors a huge number of grants and funding opportunities. Some are UK-focused while others are regional. Innovation competition areas vary from aerospace and biosciences to digital manufacturing and offshore wind. Smart grants are also available for game-changing ideas—those that have the potential to disrupt existing markets.

  1. R&D Capital Allowances

Research and Development Capital Allowances (RDAs) are a form of tax relief for businesses incurring capital expenditure for qualifying R&D activities. RDAs allow a business purchasing assets for the purposes of performing R&D to receive 100% tax relief on this expenditure. This includes the purchase and improvement of the buildings.

Relief is based on the proportion of use of the asset for qualifying R&D. For example, if the asset that qualifies for R&D is used 40% of the time for R&D, then you can claim 40% of the cost of the asset as a deduction against tax.

  1. Government Support for Specific Sectors

There is also lots of government support for particular sectors. For example, the Farming Investment Fund provides grants to farmers and foresters in England to improve productivity and bring environmental benefits. Meanwhile, the Department for Business, Energy and Industrial Strategy has launched an innovation programme supporting the use of AI to reduce carbon emissions, with up to £1 million up for grabs.

The most important point about securing funding or tax relief is you need to be proactive. New funding initiatives open throughout the year, so take the time to research the opportunities, check the eligibility criteria, and double check any deadlines.

Particularly when it comes to grants, the application process can be tricky and requires a lot of groundwork and preparation to stand a chance of winning a competition. For many organisations, the skillsets and time simply aren’t available. In such cases, there are third-party experts that specialise in different areas of tax relief, including capital allowances, R&D tax relief, remediation of contaminated land, patent box, and grants services, to help businesses in the UK make a robust claim.

This is written as if in the future. But it’s past April 2023. Has this already gone into effect? Or is the date incorrect and needs to be changed to 2024? Please confirm and revise as necessary.

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