Helping businesses secure and maximise R&D tax credits and grants

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Start-up funding: Private and public funding opportunities for your start-up business

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There are some very generous tax breaks and reliefs that encourage investors to back your business. 85% of equity crowdfunding is through Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS). Also it is common for angels to invest through syndicates to take advantage of the generous tax breaks that SEIS and EIS incentives provide. 

Equity financing

Equity financing requires you to surrender part of your business ownership in return for cash. This includes surrendering part of future profits.
Equity financing covers a wide range of activities, from raising money from family and friends to an initial public offering (IPO), when the stock of a private company is offered to the public for the first time.
Equity financing sources include:

  • Venture capital funds, which are professional groups looking for start-ups to fund. Venture capitalists are often looking for larger, more established companies. If you want to work with a venture capitalist, you will need to be flexible and willing to compromise, as you may have to give up more control of your business.
  • Angel investors, who work on a smaller scale than venture capitalists, and generally invest in smaller start-ups. Angel investors provide capital in exchange for convertible debt or ownership equity.

Crowdfunding

Crowdfunding, a form of alternative finance, is a way of funding a business or project by raising money from a large number of people.
Types of crowdfunding include:

  • Reward-based crowdfunding, for creative projects, which allows entrepreneurs to pre-sell or finance a product or service with a fundraising goal. Investors receive rewards based on their level of investment. Reward-based crowdfunding platforms include Kickstarter and Indiegogo.
  • Equity crowdfunding, for commercial projects, which allows investors to fund start-up companies and small businesses in return for equity. Equity crowd funding platforms include Funding Tree.

Loans

Whether from a bank or an alternative loan provider, loans must be repaid, and some lenders require security.
Alternative loan sources include:

  • Government-backed loans, such as those provided by the Start Up Loans Company.
  • Peer-to-peer lenders, such as Funding Circle, which allow investors to directly lend to SMEs.

Seed Enterprise Investment Scheme

A company can raise up to £150,000 in total under the government’s SEIS incentive. The investors receives 50% income tax relief through the self-assessment return. An investor can hold up to 30% stake in the start-up and invest up to £100,000 in a single tax year. No capital gains tax is paid on profits earned on shares held for more than three years. If the SEIS investment makes a loss, an individual will also be able to offset the capital loss against income. HMRC operates an Advance Assurance facility which certifies that at the time of application, the business was SEIS-compliant.

Enterprise Investment Scheme

The maximum amount of investment that a qualifying company can receive is limited to £5 million. An investor can invest up to £1 million in a number of companies and secure tax relief of 30%. It is also now possible to carry-back current year EIS investments to the previous year and this means that as a one-off a subscription of £2 million can be made. The investor must retain the shares for a minimum of three years or the relief will be clawed back. There will be no Capital Gains Tax charged on any gain of EIS shares disposed after the minimum holding period.

R&D Tax Credits

Many start-up businesses don’t claim for R&D costs because they think the scheme doesn’t apply to them, or because they are reluctant to approach HMRC who administer the scheme. It is worth speaking to a R&D tax credits specialist to see if you qualify as you could be missing out on recovering up to 33% of your development expenditure. You can benefit from R&D tax credits whether your business is making a profit or a loss. Loss-making businesses can claim a R&D tax credit payable (cash) amount from HMRC, while profit making business can significantly reduce their corporation tax bill. 

Innovate UK: R&D Grants

Innovate UK drives innovation across the UK by investing in high-potential innovation projects to accelerate sector growth. In 2016-2017, Innovate UK will invest £561m in innovation.
If you are a UK-based business, you can apply for funding to:

  • test the feasibility of your idea and make sure it will work;
  • create a new product, process, or service, or improve an existing one, through research and development; or,
  • Work with other business or research organisations on collaborative projects

Funding from Innovate UK can range from £25,000 to £10,000,000, depending on the specific conditions for each funding round. In general, the further away from commercialization you are, the more funding you can receive from Innovate UK.

As outlined above the funding options for UK start-up businesses are plentiful especially with the generous tax breaks that are on offer to investors and research and development projects. Further support will be made available from the government as they have promised to review the tax environment for R&D to ensure that the UK tax system is strongly pro-innovation and builds on the introduction of the ‘above the line’ R&D tax credit to make the UK an even more competitive place for companies to do R&D. The Chancellor’s announced boost for R&D is a welcome reassurance for companies who may have been concerned about funding after the referendum vote.


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Please contact us to discuss how working with Myriad Associates can maximise and secure R&D funding opportunities for your business.

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