by Sam Franklin | June 02, 2022 | 8 min read

Seven most important UK Government grants, loans, and tax reliefs schemes for small businesses

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Last updated: September 20, 2022

Small businesses and startups generally look at a range of sources and methods to fuel growth. For example, startup capital can come from several sources of equity finance like venture capital, seed investors, angel investors, and institutional investors or debt financing from bank loans and other sources of credit. While you undoubtedly take an in-depth look at all of these from the beginning of your journey, you should also consider the UK Government's business grants, loans, and tax reliefs, as these will not dilute the ownership of your business.

Governments want to create an environment for businesses to succeed, and small companies and startups are an especially vital part of the UK economy. With innovation and tech as stated target areas for focused growth, your company might be eligible for several types of loans and small business grants. The Department manages these finance and support schemes for Business, Energy & Industrial Strategy - you can view the full list here. With the UK Corporation Tax set to rise from 19% to 25% by next year, checking your eligibility for tax relief is another thing that is on the radar for both small and established businesses.

At Bloom, we’re experts with first-hand knowledge of the challenges of funding an early-stage venture or small business and have been producing plain-English information on our blog about some of the main alternatives available to you. This article shares an overview of some of the UK Government business grants, loans, and tax benefits available to small businesses. It outlines how much they’re worth, the eligibility criteria, and how to apply for them.


Table of Contents


Seven ways to fund or get tax relief for a small business

  1. Innovate UK Smart Grants Grant funding from Innovate UK is available as financial support for UK companies looking to develop and launch innovative products and services. A small business grant is possible in this area where it will encourage new ideas that can improve people’s lives and lead to job creation. This type of grant funding is important because innovation project costs can be high due to the level of R&D required, and business funding from other sources such as equity capital may be difficult to find.  Several small business grants are available in this area as it’s recognised as being riskier from a commercial success perspective. The Smart Grants scheme is a competition to fund eligible projects with a business grant at various stages of maturity. You can be awarded a share of £25 million in grant funding from the competitive application format. You can read more about eligibility, and the application procedure in our recent post ‘Is your business eligible for innovation grants? The full guide’. Of course, you can look outside of Government initiatives for small business grants and alternatively, you can look at the alternative sources of funding mentioned in this article.

  2. UK startup loans Along with grant funding and equity funding, debt financing such as a startup loan is an option for owners of small companies to help business growth. When it comes to startup loans compared to equity financing, if retaining full ownership and control of your business is important to you, you may look to use loans in preference to dilutive forms of funding from investors. A startup business loan from your bank will have repayment conditions that match your specific circumstances and may require collateral as security. As an alternative, you can look at getting a Government-backed loan from Start Up Loans (part of the British Business Bank plc).  Start Up Loans have a nationwide network of delivery partners to support businesses and a Financial Conduct Authority (FCA) regulated finance partner to manage the loans. It has supported over 90,000 business ideas with more than £800 million worth of loans. You can read more about how Government-backed loans work, the eligibility criteria, and the application process in our recent article ‘Startup loans backed by the UK government | Everything you need to know’.   

  3. Video Games Tax Relief If you are developing video games in the UK, you will want to know all about Video Games Tax Relief (VGTR) which is available for new and established businesses. VGTR is a Corporation Tax relief to support the creative industry, with its deductions reducing your taxable profits for video game development.  Like any software development segment, the video gaming industry is extremely competitive, with excellent game developers working worldwide. The growth of the industry has accelerated further since the pandemic lockdowns with people increasingly looking for entertainment at home. Online gaming, especially involving virtual and augmented reality, is also a significant part of the emerging ‘metaverse’ industry, where people blend their physical real life with digital virtual worlds, where Big Tech players such as Meta (formerly Facebook) are now taking a position. This all makes VGTR a massively important initiative by the UK Government to keep the country’s position as innovator in these spaces, and something that you will want to explore. You can read more about this tax relief in our blog post ‘Is your business eligible for Video Games Tax Relief (VGTR)? The full guide’.    

  4. Patent Box The UK Patent Box tax relief has been around since 2013. It incentivises companies to commercially leverage existing patents and develop product innovations. The regime is designed to identify the profits attributable to exploiting patents in commercialising a product and considers the R&D involved to reduce the rate of Corporation Tax to just 10%. The Patent Box scheme is another way to encourage innovation and invention in the UK's local economy. This targeted relief helps maintain our competitiveness on the international stage and also helps to contribute to job creation. Some complex calculations are needed to assess what qualifies for entry to the Patent Box, so you will probably require the help of an expert in this area. In the meantime, you can find much more detail in our article ‘How to use the UK Patent Box regime for Corporation Tax’.

  5. Enterprise Investment Scheme The Enterprise Investment Scheme (EIS) was introduced in 1994 to help early-stage businesses raise money. If you have your own business, you’ll be aware that getting funding can be tricky as you won’t have a track record to show to potential investors. EIS offers a range of attractive tax benefits to investors in eligible companies, including capital gains, tax-free investment, income tax relief, and other forms of tax breaks.   Your small business should qualify for the scheme if it has under £15 million in assets, less than 250 employees, and has been around for no more than seven years.  You can read more about which companies are eligible for the scheme and the tax reliefs available to investors in our article ‘Introduction to the Enterprise Investment Scheme’.

  6. EIS Advance Assurance To help you with the quest to bring new investors on board, you can first gain ‘advance assurance’ from HMRC of your eligibility for EIS. This can give investors who want to support small companies faith that your business will go on to qualify for EIS and that their investment will therefore qualify for the associated tax reliefs. Tax reliefs, backed up by advance assurance, are a way for the UK government to encourage investment into the startup and small business economy that might otherwise be less forthcoming because of risk perceptions. While it isn't mandatory to apply for advance assurance, doing so can avoid difficulties with investors later down the line if, for example, your company doesn’t qualify for EIS and you have sold some shares on the basis you would. You can learn more about advance assurance in this post:‘Enterprise Investment Scheme (EIS) advance assurance | The full guide’.

  7. R&D tax credits To encourage investment in R&D, the UK Government offers small and large companies tax credits. This means that UK companies investing in R&D can pursue innovation, reduce their levels of Corporation Tax, and receive reimbursed expenses. These tax credits are available to all sectors (not just science and technology) that participate in eligible R&D activities. With it, you can claim back the total qualifying expenditure through tax computation even if the project is ultimately unsuccessful. You can claim any cost associated with an eligible project from the date it began until you end the project. The costs you should consider include staff costs, subcontractor costs, and consumable items costs.

Conclusion

We hope this gives you encouragement about the various ways you can fund your business, from small business grants to increasing your profits for reinvestment by using eligible tax benefits. You will need to have a solid business plan and thorough documentation to support your application for any of the schemes listed. Encouragingly, most of these grants and tax benefits are open to all UK businesses regardless of industry, as long as you meet the specific criteria for each.

There are other types of grant funding available from the UK Government too. This includes grants for unemployed entrepreneurs, taking on apprentices, installing high-speed broadband, air quality schemes, and more. These might not offer as much funding as the seven schemes listed above, but they are still worth taking a look at as part of your overall financing strategy as a small company.

Small business grants are of particular value to business owners who are especially keen not to overly use dilutive forms of funding from giving away equity to investors. If you want to discuss alternatives to business loans that are non-dilutive and founder-friendly, you can contact us and find out more.

Written by

Sam Franklin
Sam Franklin

Sam founded his first startup back in 2010 and has since been building startups in the Content Marketing, SEO, eCommerce and SaaS verticals. Sam is a generalist with deep knowledge of lead generation and scaling acquisition and sales.

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