Prior to the introduction of the Merged Scheme a common choice for a Company when it came to funding R&D projects was the choice between meeting the requirements to utilise the SME scheme or to use grant funding and be forced into the less beneficial RDEC scheme. Additionally, where a project was funded by an external party or even through de minimis grant funding this would still be forced into the less beneficial subsidisation rules. The key reason behind this was that only one form of notified state aid could be received in relation to a project. As the SME scheme was deemed to be a notified state aid this therefore massively restricted the use of grant funding for these projects which led to many companies analysing the cost/benefit of grant funding and its future R&D claims.
Thankfully, with the new merged scheme which has been introduced this is no longer a problem. As part of the new legislative conditions the restriction placed on either notified state aid or subsidies received in relation to a project have now been completely removed. As such, for periods starting after or beginning on 1 April 2024, there is no longer a choice to be made between grant funding and the most beneficial R&D scheme. Rather it is still entirely possible to meet the requirements of the Merged or Enhanced R&D schemes.
Based on this advice on the use of grants has switched entirely with companies now being encouraged to utilise as many grants as possible in their work without this leading to a restriction in the benefit of an R&D claim down the line. The removal of these conditions from the scheme is a massive benefit to those companies at the very early stages of their development, particularly those in the first years of securing funding and establishing their path. A common pitfall seen in many of these cases was founders in years 2-5 of their development seeing the value of their R&D claims hit significantly due to projects being forced into the RDEC scheme which would have a massive impact on the funding runway of these young, innovative companies. This was a problem for not only the company, but its investors who would be forced to either make up the difference or for the company to reduce its growth plans.
Whilst there has been much confusion and complication around the introduction of the new R&D schemes, the one genuinely influential point is the removal of the state aid and subsidy rules as this will provide a significant economic boost to those companies who need it most.
Who are the grant providers
The UK has one of the most sophisticated and beneficial grant funding networks in the European market. There is a vast network of grant providers with significant budgets available to support a multitude of areas of development focused on the Governments key innovation pillars. For example, these grants are provided through UK Research and Innovation. As well as this there are regional bodies within the UK such as Scottish Enterprise which seek to perform the same role, providing funding to help early-stage companies with innovative ideas have a platform to grow.
As well as this UK based companies still have access to European Union backed schemes such as the Horizon and Eureka networks which can also provide funding. Lastly, there is a large number of incubators and accelerators based in the UK which can provide funding for specialist areas of work.
With the updates made to the scheme the key message around grant funding has shifted from “potential pitfall” to a necessity.
