Government Funding for Startups: Programs and Opportunities
As a startup founder, there are a range of funding options to consider to help start and grow your business. These include government funding, debt financing and equity funding. In this article, we will look at ways to take advantage of government funding methods and which option may be best suited to your business.
Government funding is a method of encouraging the growth of the economy through incentives to help startup businesses grow. This is provided in many different ways, such as tax mitigation or mentoring. Below are some examples of what programmes the government has to offer.
Prince’s Trust Enterprise Programme
If you are starting a business and are between 18-30 years old, you may be able to kickstart your business with help from the Prince’s Trust enterprise programme.
This form of funding was introduced in an attempt to aid young people realise their potential and encourage self-employment as a viable career path. In addition to funding, the enterprise programme includes training, mentoring, advice and support in the form of seminars and one-to-one sessions. The enterprise program offers a valuable way for young founders to get to grips with concepts such as business money management, team building, legal structures, HMRC, and marketing, and would benefit any eligible startup.
Research and development tax relief
Research and development (R&D) tax relief is an option for businesses that work on research and developmental projects in the field of science and technology. It provides tax relief to growing R&D companies (at different rates depending on the size of the business) who cannot afford the high tax rates, but require funds in order to develop an advancement in a certain field.
This can apply to small and medium sized enterprises, as well as larger companies, at different rates. Small to medium sized enterprises (SMEs) are companies with fewer than 500 staff and a turnover of less than €100 million. If your company is eligible for R&D tax relief, you may be able to deduct an extra 130% of qualifying costs from your yearly profits. This is on top of your normal 100% deduction, totalling 230%.
There is also availability for larger companies, or smaller companies subcontracted by larger companies, for research and development. This is the research and development expenditure credit. This tax credit, from the 1st of April 2020, is at 13% of your qualifying expenditure on R&D expenditure.
Furthermore, if your R&D project is unsuccessful, this does not limit your chances of claiming R&D tax relief, so long as the Government’s set criteria are met.
If you feel this is a viable option for your startup, consider the requirements of the type of R&D projects eligible. This can be found on the government website here.
Innovation Grants
Along with R&D, the innovation grant promotes the development of revolutionising technology to allow ideas to grow into physical products or services. The aim is to encourage the advancement of technology and innovation in the UK.
Innovation grants can be sourced through various organisations, as well as through the government, and comprises a certain amount of funding being provided per year. The amount of funding provided will depend on the organisation and suggested product or service. Securing funding through innovation grants is an indication of your company’s potential for growth and profit, and can help signal your company to angel investors.
You can apply for funding on the Gov.uk website here.
Patent Box tax relief
A Patent Box is a tax relief on income earned from the sale or use of a product under Intellectual Property (IP), encouraging companies to contribute to IP through research and development in the UK. You may be eligible for this tax relief if your company requires or uses a patent.
Where this Patent Box tax relief applies, companies are given a reduced rate of 10% chargeable tax on IP income, rather than the standard corporation tax rate (currently 25%).
Creative Industry Tax Relief
Creative Industry tax relief is a collection of tax incentives which work to raise the allowable expenditure of eligible companies in creative industries, therefore reducing their owed corporation tax.
This tax relief is designed to encourage companies in creative industries such as film, television, video game production, animation, and gallery exhibitions, and aims to further advance creation and investment in cultural UK productions.
As the name suggests, your business must be a part of a creative industry in order to qualify for this tax relief. Use the government website to check if you qualify here. Another significant qualifying factor for film tax relief is whether your film meets the cultural test established by the British Film Institute.
Although not an exhaustive list, we hope this article has provided you with an insight into some government funding methods.
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Author: Tanisha Shah - Editor: Gaia Freydefont -
Author: Tanisha Shah - Editor: Gaia Freydefont -
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DISCLAIMER
This article has been written by law students for the sole purpose of providing informative insight. The information in this article is intended for educational purposes only and does not constitute legal advice, nor should the information be used for the purpose of advising clients. You should seek independent legal advice before relying on any of the information provided in this article.
Sources
Corley P and Bone S, ‘Gateley - a Guide to Claiming Patent Box Relief in the UK’ (Gateley PLC 23 April 2021) <https://gateleyplc.com/insight/guides/a-guide-to-the-patent-box/> accessed 11 June 2022
HM Revenue & Customs, ‘Research and Development (R&D) Tax Reliefs’ (GOV.UK 1 January 2020) <https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief> accessed 11 June 2022
