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Inspiring Innovation

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7 November 2011

There has been a lot of talk about the Government’s desire to restore the UK to the position of a world-leading innovator. What support is available to help stimulate innovation by UK business? I’m pleased to say that moves are being made to foster an environment which encourages innovation.


Grants are now available through the Technology Strategy Board for certain development work. Some of these grants focus on specific technologies but there is also a general grant for R&D to assist with costs such as proof of market, proof of concept, and development of prototypes. Applying for these grants is a competitive process, so there is no guarantee that a grant will be obtained even for a worthy cause. The grant will only fund part (albeit a significant part) of the project, so other funding will also need to be secured.


What about equity funding?  This is important given the current difficulty in securing bank / debt finance. There are significant tax incentives for investment into shares in small and medium companies, which are aimed at loosening the wallets of wealthy investors or ‘business angels’. The Enterprise Investment Scheme (‘EIS’) gives income tax relief on investments up to £500,000 (increasing to £1 million next April) in small trading companies, which will now reduce the eligible investor’s tax income tax bill by up to 30% of the amount invested.

Also from next April the size of companies in which EIS investment can be made will increase from 50 to 250 employees. If the scheme conditions are met, any gain made by the EIS investor when the shares are sold is exempt from capital gains tax; a significant incentive to invest this way. This scheme is very helpful in increasing the attractiveness of investing in innovative companies, and the widening of the number of companies to which it applies is welcome.

R&D incentives

When funding is secured and the company incurs expenditure on developing its new innovation, there are further tax incentives which may give it a helping hand. In my view, these ‘Research and Development’ tax incentives are inappropriately named. It is often incorrectly assumed that they are the preserve of high technology companies. In fact they apply to improved technology innovation wherever it arises. Manufacturing and engineering companies sometimes don’t realise they are eligible to claim R&D tax incentives. R&D tax incentives are available to companies of all sizes, but the incentives for smaller companies are proportionately more beneficial than those for large companies. SMEs can claim a ‘double deduction’ from taxable profits for qualifying R&D costs, or alternatively can ‘cash in’ R&D losses for a cash payment from HM Revenue and Customs. These incentives are set to be improved even further from April 2012.

‘Patent box’

Hopefully the company’s innovation and development will result in some valuable intellectual property which it may consider protecting with patents. Here again, there will soon be tax incentives to think about in addition to legal protection issues. It is proposed to introduce a new ‘patent box’ tax regime from April 2013, which will reduce the company’s tax rate to just 10% on profits from patents and patented products.

In addition to these measures, there are many other forms and sources of assistance for UK innovation and knowledge transfer. I would suggest it is worth devoting some research time to investigating the help available

To find out more about any of these grants or tax incentives, please contact David Clift at david.clift@hazlewoods.co.uk.