Grants, R&D tax credits and Innovate UK alongside equity

Equity is expensive money — you give away part of the company for ever. Before you sell a fifth of the business, check whether the government will give you some of it for nothing. For the right businesses, R&D tax relief and grants can fund a third of the plan without a single share changing hands. For the wrong ones, chasing grants costs months and wins nothing. Here is how to tell which you are.

R&D tax relief

If the company is trying to achieve an advance in science or technology by resolving uncertainty that a competent professional could not readily resolve, the cost of that work — staff, contractors, software, consumables — attracts tax relief. Since the 2024 merger of the schemes, most companies get a taxable credit worth around 15–16% of qualifying spend; loss-making R&D-intensive companies (over 30% of costs on R&D) can get a higher rate, around 27%. It is paid in cash to loss-making companies, which is what makes it matter at seed: £200k of qualifying spend is £30–50k back, usually within a few months of filing.

What qualifies is narrower than founders hope. Building a website does not. Building a new algorithm that nobody has built because it was not known to be possible might. Using AI off the shelf does not; solving a problem the off-the-shelf model could not is arguable. HMRC has tightened hard since 2023 and claims are being checked; use a specialist who will put their name on the technical narrative, and expect to be able to explain the uncertainty yourself.

Innovate UK and other grants

Innovate UK runs competitions — Smart grants, sector programmes, collaborative R&D — typically funding 50–70% of project costs from £25k to several million. They fund projects, not companies: a defined piece of innovation with milestones, deliverables and a finish. Success rates for Smart are low (under 10%), the application takes weeks, and the money arrives quarterly in arrears against claims. Worth it if you have a genuinely innovative project and the time; a distraction if you need cash in the next quarter. Regional and sector grants (growth hubs, devolved administrations, specific industries) are smaller and easier, and often overlooked.

How grants interact with SEIS/EIS and a raise

Grants are not shares, so they do not dilute and do not affect SEIS/EIS eligibility directly. But some grants count as state aid, and R&D relief rules differ for projects that received it; your adviser needs to know about both.
Match-funded grants require you to have the other 30–50% — often from the equity raise. "£600k raise unlocks a £400k Innovate UK grant" is a strong use-of-funds line.
Investors like non-dilutive money; a grant awarded is evidence of validation. A grant applied for is not — do not count it in the forecast until it is awarded.

The order to do things in

Check R&D eligibility now; if it qualifies, make sure you are recording qualifying spend from today.
Identify any grant you could realistically win in the next six months. Apply before the raise if the timeline allows; otherwise reference it as an upside.
Raise the equity you need regardless of the grant. Grants are slow and uncertain; a plan that depends on one is a plan that depends on luck.
Claim R&D relief every year, on time. It is the most reliable of the three.

Questions founders ask

"Can investors' SEIS money be used as the match for a grant?"

Generally yes — the money is the company's once the shares are issued — but the grant body may have rules on the source of match funding and the timing. Check the specific scheme.

"Should I mention R&D claims on my listing?"

If you have received one, yes, under traction — it is cash and validation. If you intend to claim, mention it under financials as an expected inflow with the amount and timing.

"We were rejected by Innovate UK. Does that hurt?"

No. Most applications are rejected; investors know the odds. Do not list it as a pending upside afterwards.

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