How to use Innovate UK grants for business

What is Innovate UK?

Innovate UK is an organisation that is part of UK Research and Innovation – a public body funded by the UK Government. The purpose of Innovate UK is to improve the country’s economic growth and they aim to do this by supporting businesses who use science and technology to innovate existing products, processes, or services. They are able to help such businesses with funding, connecting them to the right partners needed to help them succeed in their venture, as well assist them with launching, building and growing their company. Since 2007, Innovate UK has helped more than 5,000 companies in their innovation projects which has been estimated to add £7.5 billion to the UK economy and created 35,000 new jobs in the country.

How do Innovate UK grants work?

Each year Innovate UK set out an annual delivery plan which outlines how they aim to achieve economic growth for the country. The plan identifies certain sectors which require support to stimulate activity either because there is a slump or gap in the market, or economic matters which are in need of urgent development (such as combating climate change or adapting to rapid globalisation). Overall funding is provided by the state which Innovate UK then allocate to targeting these areas in need of progression.

Innovate UK grants are unlike some other business grants which are issued upon successful application that confirms the applicant meets all the eligibility criteria. Instead, Innovate UK grants are awarded based on competition. It means you must first meet the eligibility criteria, but then must also present the best proposal amongst other applicants who are equally eligible in order to win the grant. By offering grants in this manner, Innovate UK can determine the most suitable business that should receive funding as their winning proposal will align best with their own objectives. Therefore, in order to receive funding from an Innovate UK grant, your application must propose a business project that will both help them advance towards achieving their own goals as well as help you realise your own business aspirations.

In general, at least two competitions are available each year over four key areas: emerging and enabling technologies, health and life sciences, infrastructure systems, and manufacturing and materials. In addition to these, they will also offer two Open competitions a year, as well as specific competitions linked to the Industrial Strategy Challenge Fund. Innovate UK are further responsible for administering grant funding for other competitions held by some other government agencies.

How much can you receive from an Innovate UK grant?

How much funding a grant from Innovate UK offers is dependent upon the competition. They will specify the amount under the project size section on the summary page of each competition. Typically grants can range anywhere between the tens of thousands to the millions of pounds mark thereby truly giving businesses a real opportunity to develop their ideas and make them into a reality.

However, it is important to note that the grant amount will often come with stipulations. Some of the most common examples of how much will be offered in the grant and what it is dependent upon include:

• Specifying that your project’s total eligible costs are between a certain amount e.g. “Your project’s total eligible costs must be between £300,000 and £1.5 million.”
• Specifying that your project must be covered within a certain time period as well as have a certain amount of eligible costs associated with it e.g. “Projects with durations between 6 and 18 months must have total eligible project costs between £25,000 and £500,000”
• Specifying that the grant amount will only cover a certain percentage of your overall eligible costs e.g. “Your project’s total eligible costs must not exceed £128,000 over 24 months, of which up to 75% will be funded by this initiative.”

At other times, Innovate UK will state that they “will consider partially funding project costs of any amount if we judge the costs to be appropriate”. The vague guideline is usually only applicable to smaller grants, but they will also provide some indication as to what they expect typical eligible costs to be.

What are the funding rules for Innovate UK grants?

Innovate UK grants are forms of state aid because it is a public body funded by the government. As such, regardless of Brexit, the UK will continue to adhere to the European Commission rules regarding state aid. If you plan to use an Innovate UK grant for your business, you will need to ensure you have carefully considered how the funding will be used and also where your other streams of funding will be coming from. This is due to Innovate UK rarely offering to provide 100% of funding for businesses. Usually, only a percentage of your project will be funded by the grant and they will expect to source match funding (the remaining amounts required to fulfil your project).

As a result, many businesses will seek out private investment to supplement the additional funding required. One of the best ways to do this is to attract investors through tax-advantageous schemes such as the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS). Both schemes are also forms of state aid due to the generous tax relief available and so must comply with EC rules. They can still be used alongside Innovate UK grants so long as the total amount of funding received does not exceed the maximum thresholds to disqualify use of the schemes. SEIS has a maximum investment allowance of £150,000 over a three-year period. If your business receives an Innovate UK grant worth over this amount, then you may not be able to use SEIS at all. Similarly, if your business receives £75,000 through a grant, the maximum you may be able to raise using SEIS is £75,000. This rule could similarly be applied to EIS also, however at the higher limit of £5 million per year (and a £12 million lifetime limit).

An alternative route to secure funding is to utilise R&D tax credits. Unlike grants and SEIS/EIS, using R&D tax credits means receiving tax credits only after eligible costs have been spent so it is crucial to consider timings when using this method of funding. There are two forms of R&D tax credits: [1] SME R&D tax credits – which offer up to 33% back in tax credits on eligible expenditure and [2] the Research and Development Expenditure Credit (RDEC) which offers 12% on eligible expenditure. The SME scheme is a form of state aid and so it cannot be used together with Innovate UK grants for the same project. However, if the Innovate UK grant has been specified as de minimis then it will result in a pound for pound restriction of the eligible R&D expenditure under the SME scheme as opposed to total exclusion. If the grant is not de minimis, the RDEC scheme may be used instead as it is not a form of state aid. See our other article for more advice on how to use R&D tax credits with grants.

How grant money can be used for business projects

As part of the application process, you will need to detail how you intend on using grant funding to complete your project. Not all your business costs will be allowed to be included as Innovate UK will want to ensure that the grant has been put to use specifically for the purpose of the project. The grant can therefore be used for:

• Labour costs – The cost of salaries to employees who are directly working on the project or are required as support of the project. For example, an employee who is directly working on the project may be an engineer where someone who is required as support could be the procurement officer responsible for buying necessary equipment and materials for the project. An employee such as a cleaner who cleans all the business spaces including where the project is taking place will not be eligible to be included. You can account for salary, National Insurance, employer’s pension contribution, performance bonuses, life insurance or other benefits as part of labour costs.
• Overheads – There are two options when it comes to using a grant to pay for your overheads. The first option is the simpler and allows you to include 20% of all business overheads whether directly or indirectly associated with your project. This requires no additional documentation from you and results in a faster review process. The second option is to provide calculations for the direct and indirect overhead costs accrued as a result of the project which will be assessed by Innovate UK’s project finance team to confirm your allocation of costs is appropriate. Innovate UK will never allow 100% of overhead costs to be covered by the grant.
• Indirect overheads – If you choose to provide calculations to include costs of indirect overheads you will need to provide additional information on the expenditure you want to include. They can consist of overheads necessary for the overall operations of your business; however, they should be incurred as a result of taking on the project specifically and therefore be over and above usual business costs. Examples include the cost of installing surveillance cameras may be necessary because you are taking on a sensitive project which requires additional security or the cost of renting extra office space. A full list of eligible indirect overheads and what should be included or excluded can be found here.
• Materials – Only materials which have been purchased from a third party solely for the purpose of the project can be included as eligible costs. If there is residual stock or resale value after the project, then the amount should be deducted. If the materials are obtained through your associated companies or subcontracted from consortium members, then only the cost price should be considered (excluding profit or margin they receive). Materials including software can be included.
• Capital usage – Costs of using capital assets can be included as long as they have a useful life of at least one year; they are standalone, clearly definable and moveable; and conform to your company’s capitalisation policy. The Government website provides calculations examples of how these costs should be determined and also provides an example here.
• Subcontractor costs – If you require the help of subcontractors for your project their work must be essential to the success of your project; involve expertise which is not available in your own team; and uses skills which are not practical to develop in-house for the project.
• Travel and subsistence – Only travel costs for individuals that have been identified under the labour costs section will be eligible. The travel must be necessary for the project, such as sending someone to inspect and collect equipment for the project. The claim can only be made against economy travel costs and must be deemed as reasonable.
• Other costs – These can include workshop/laboratory charge out, training, preparation of technical reports, market assessment, licensing new technology, or filing costs for patents of new intellectual property.