How can innovation grants boost growth for UK businesses?

For many UK businesses, innovation is the driving force behind growth. New products, improved processes, and smarter technologies can all open doors to fresh opportunities. But funding that work is not always straightforward. That is where innovation grants come in.

They provide financial support to help companies take bold steps forward. They can also reduce the risk of investing in research and development and provide the resources needed to test new ideas. For some businesses, they make the difference between a project that remains at the concept stage and one that leads to measurable progress and innovation.

Innovation grants are funding programmes, often backed by government or industry bodies, that provide financial assistance for businesses undertaking projects with potential economic or social impact. Unlike loans, grants do not usually need to be repaid. They are awarded on the strength of a project’s potential to deliver measurable benefits, whether that is through advancing technology, improving productivity, or addressing national priorities such as sustainability or healthcare.

In the UK, innovation grants are available across a wide range of sectors. They can come from UK Research and Innovation (UKRI), Innovate UK, regional growth funds, or other specialist industry programmes. Each has its own eligibility criteria and assessment process, but the underlying purpose is the same: to encourage innovation by reducing financial barriers.

Securing an innovation grant can have a direct impact on a company’s ability to grow. The funding provides businesses with resources to:

• Invest in research and development projects that might otherwise be delayed or shelved.
  
• Hire or upskill staff, strengthening technical capabilities.
  
• Purchase equipment or facilities that make innovation possible.
  
• Accelerate the journey from concept to market.

Beyond the financial aspect, grants often add credibility. Winning a competitive grant award shows investors, partners, and customers that your idea has been independently validated. That recognition can support further investment and open doors to collaboration opportunities.

A question we often hear is whether applying for or receiving an innovation grant prevents a company from claiming R&D tax relief. It’s a common misunderstanding, but the two forms of support are designed to work together. Receiving a grant does not automatically rule out a claim for R&D tax relief; it simply affects how that claim is structured.

Historically, certain grants were classed as notified state aid, meaning some businesses could not claim under the SME R&D scheme for the same expenditure. In those cases, claims were instead made under the RDEC scheme, which was open to both large companies and SMEs affected by subsidy rules. Other grants were not classed as state aid and therefore had no impact on R&D tax relief eligibility.

From our experience, this has always been an area that can cause confusion. The important point is that grant funding changes how relief is claimed, not whether it can be claimed at all.

Under the merged R&D scheme, which applies to accounting periods beginning on or after 1 April 2024, the treatment of grant funding has been simplified. The previous definition of “subsidised expenditure” has been removed, which means that receiving a grant no longer reduces claimable amount of R&D tax relief. This change broadens eligibility, particularly for R&D-intensive SMEs that may also qualify for additional support through the Enhanced R&D Intensive Support (ERIS) scheme.

While the underlying legislation remains largely the same, the rules are now clearer and more consistent. In practice, this makes it easier for businesses undertaking grant-funded R&D to access tax relief under the merged framework. At Easy R&D, we help our clients understand how these changes apply to their projects and ensure their claims remain compliant and optimised for their situation.

These grants are not just about funding a single project. They have a ripple effect that can support wider business growth. A successful grant-funded project often leads to new intellectual property, patents, or processes that strengthen a company’s long-term position. It can open new markets or give a competitive advantage that drives revenue for years to come.

There are also industry-wide benefits. By reducing the financial risks of innovation, grants encourage more businesses to undertake ambitious projects. This creates a culture of progress, raises standards across supply chains, and strengthens the UK’s reputation as a hub of innovation.

To maximise support, businesses need to think strategically about how they use innovation grants alongside R&D tax relief. This involves:

• Identifying the right grant opportunities early, based on your sector and growth plans.
  
• Keeping detailed records of expenditure to show how funding has been used.
  
• Structuring projects in a way that allows you to separate costs, so that you can claim relief where possible.

Easy R&D works with clients to navigate these requirements. We ensure that any grant funding is taken into account when preparing an R&D claim, so you remain compliant with HMRC rules while still securing the maximum benefit available.

Consider a manufacturing company developing a new type of energy-efficient material. A government grant might provide the upfront resources to run trials and purchase specialist machinery. Alongside this, the company could claim R&D tax relief on staff costs and consumables, creating a combined support package that significantly reduces the financial risk of the project.

Or take a software business working on an AI platform. A grant could fund the development of a proof of concept, while R&D tax relief helps cover the cost of refining algorithms and scaling up infrastructure. By using both, the company strengthens its cash flow and accelerates progress.

These examples show how grants and tax relief can work harmoniously. The grant makes the project possible, while R&D relief rewards the company for the technical challenges it overcomes along the way.

Navigating innovation grants and R&D tax relief together can be complex, but the reward is worth the effort. At Easy R&D, we have helped businesses across numerous sectors, secure millions of pounds in R&D relief, while also advising on how grants interact with claims.

Our team makes the process straightforward. We help you identify qualifying activity, prepare the right evidence, and structure claims so that grant funding is correctly accounted for. By doing this, we ensure your business maximises the financial support available while staying fully compliant.

The UK government continues to emphasise innovation as a driver of economic growth. New funding competitions and grant programmes are launched regularly, targeting areas such as clean energy, digital transformation, and advanced manufacturing. Businesses that engage with these opportunities stand to benefit not only from direct financial support but also from the momentum that comes with being part of national innovation priorities.

At the same time, R&D tax relief remains a cornerstone of support for companies investing in research and development. Together, these grants and tax relief form a powerful combination that can boost growth, improve competitiveness, and encourage long-term investment in new ideas.

Innovation grants give UK businesses the confidence and resources to invest in projects that drive growth. They reduce financial risk, open doors to collaboration, and often lead to breakthroughs that shape entire industries. Importantly, receiving a grant does not exclude you from claiming R&D tax relief. With the right guidance, both forms of support can work together to provide significant financial and strategic benefits.

Easy R&D is here to help you understand the rules, maximise your claims, and keep the process simple. If your business is planning an innovative project, now is the time to explore the grant opportunities available and ensure your R&D claim is structured to give you the best possible return.