How grants work for UK startups

This guide covers where grants for UK startups come from, what funders look for, the rules that come with public money, and how to pay for a project while grant claims are paid in arrears.
By Buzz Accounting · Updated 16 September 2026

What a grant is

A grant is public money paid towards a defined project. You do not repay it as long as you keep to its terms, and you give up no shares in the company. Grants are awarded competitively, usually cover only a percentage of a project's eligible costs, and are normally paid after the money has been spent, so the company pays for the work first and claims the grant in stages.

The funder decides which costs are eligible, asks for evidence with each claim, monitors progress and can reclaim the grant if its terms are broken. A grant towards day-to-day costs is normally taxable income for the company. A grant from a public body is usually a subsidy, which brings rules on declaring what you have received before.

Innovate UK, the UK's national innovation agency, funds research, development and innovation projects and now focuses its support on deep tech businesses in the UK's priority sectors. Its Smart Grants programme is closed to new applications. Scottish Enterprise, Business Wales and Invest NI run their own schemes, and in England local growth hubs offer free advice and help with finance.

What this guide covers

Innovate UK, growth hubs and the funders in Scotland, Wales and Northern Ireland
Match funding, grant claims and what funders assess
Subsidy control and R&D tax relief on grant-funded costs
A cashflow example for a grant-funded project

Where grants come from

Innovate UK competitions

Innovate UK is part of UK Research and Innovation and runs grant competitions for innovative businesses. Each competition has fixed dates, its own scope, eligibility rules and budget, and applications go through the Innovation Funding Service. Open and upcoming competitions are listed in UKRI's funding finder. Competitions fund feasibility studies, industrial research and experimental development, and the category affects how much of the cost a grant can cover.

Innovate UK Smart Grants are closed to new applications, and UKRI says the funding is being aligned to Innovate UK's new strategic direction.

Investor Partnerships

Investor Partnerships pairs an Innovate UK grant for an R&D project with equity investment led by one of Innovate UK's approved investor partners, which include venture capital funds, business angel groups, corporate investors and social impact investors. The programme is for micro, small and medium-sized companies in the Industrial Strategy sectors, such as digital and technologies, life sciences, clean energy and advanced manufacturing. The first stage is an expression of interest submitted by the investor partner, so you need a relationship with one of them before a grant application can start.

For feasibility studies and industrial research, the grant can cover up to 70% of costs for a micro or small company and up to 60% for a medium-sized one, and the aligned investment must be at least equal to the grant. For experimental development, which is nearer to market, the rates are up to 45% and 35%, and the investment must be at least twice the grant. Each competition brief sets out what is in scope and how much funding is available.

Growth hubs and local schemes in England

In England, gov.uk points businesses to their local growth hub for free advice and financial help, through a growth hub finder. The government's finance and support finder lists national and local schemes that you can filter by grant, region, sector, size and stage. Local schemes on it include, for example, a Sunderland grant paying 40% towards innovative projects costing £5,000 to £25,000.

Scotland, Wales and Northern Ireland

In Scotland, Scottish Enterprise's R&D grants are for projects of at least £1 million of company spend, with a minimum grant of £250,000. An SME working alone may receive 35% to 50% of eligible costs, the work must not have started, and recipients must meet Fair Work conditions, including paying the Real Living Wage. Highlands and Islands Enterprise and South of Scotland Enterprise cover their own areas, and Find Business Support lists other public funding in Scotland.

In Wales, SMART Innovation Funding from Business Wales is a discretionary grant for research, development and innovation by organisations with an operating base in Wales. Applicants need a business plan and evidence of financial viability or investment, and the scheme does not fund work that has already started or low-level, incremental innovation.

In Northern Ireland, Invest NI offers Innovation Vouchers worth £10,000 to buy expertise from universities, colleges and research organisations, up to £15,000 for SMEs towards technical service providers through its Technical Development Incentive, and up to £100,000 of Project Definition support for businesses new to R&D. Its follow-on Grant for R&D is only for Invest NI clients who have discussed the project with Invest NI and been issued with an application form.

Match funding and paying costs before you claim

Where a grant covers only a percentage of eligible project costs, the company pays the rest, which is called match funding. Your share can come from cash in the bank, revenue or investment, and funders check that you have it. Innovate UK's finance checks look for an established organisation with access to the funds needed to complete the project, and it may ask for filed accounts, management accounts, bank statements or evidence of investor support.

Innovate UK's grant terms show how payment works:

the grant is paid quarterly in arrears, for eligible costs incurred, invoiced and paid in the quarter
each claim must be submitted within 30 days of the end of the quarter, with evidence and an updated forecast
Innovate UK normally pays within 30 days unless it needs more information
10% of the maximum grant is held back until the project ends and the final claim, final report and closing paperwork have been received
costs incurred before the agreed start date cannot be claimed
staff costs are claimed at normal payroll rates for employees on PAYE, backed by time records

A company registered for VAT claims its costs net of VAT. With the final claim, a partner whose eligible costs are above £50,000 provides an independent accountant's report, and other partners a statement of expenditure. The cost of the accountant's report cannot be claimed from the grant.

What funders assess

At Innovate UK, a competition manager first checks eligibility, including that you are a UK registered business and that the costs, grant request and project length are within the competition's limits. The innovation lead then checks that the application is in scope. Applications that pass are scored question by question by independent assessors from business and academia, sometimes followed by an interview, and the highest-ranked applications above a quality threshold are recommended for funding. Innovate UK can also fund a spread of projects across topics, sizes and locations, which means a lower-scoring application is sometimes funded ahead of a higher one.

Scottish Enterprise asks for a project that is a significant innovation for the company, commercial prospects, the management and technical expertise to deliver it, a project and business that are financially viable, and evidence that the project could not go ahead without the grant, or would be slower or smaller. Business Wales asks applicants to show that the project will increase their R&D capability and deliver a significant technical improvement to their products, processes or services.

Subsidy control

A grant from a public body to a business is usually a subsidy under the Subsidy Control Act 2022, which sets the rules public bodies follow when they give support on better terms than a business could get commercially. The funder carries most of the obligations. For a startup, the rules that matter most cover Minimal Financial Assistance, an exemption that lets a public body give smaller subsidies without a full assessment.

A business can receive no more than £315,000 of Minimal Financial Assistance over the current financial year so far and the two financial years before it, with financial years starting on 1 April. Before making an award on this basis, the funder must tell you in writing that it is Minimal Financial Assistance and what it is worth, and you must confirm in writing that it will not take you over the limit. You then keep a record of the award for at least three years.

All awards made this way count towards the same £315,000, along with any EU de minimis aid received in the period, so a startup that takes several smaller grants on this basis can use up its allowance. Keep a list of every public grant, the date and the basis it was given on. Larger awards are made under other routes in the Act, and an Innovate UK grant offer letter states the subsidy status of the award. In Northern Ireland, EU State aid rules still apply to some support for businesses that trade in goods or electricity.

Grants and R&D tax relief

For accounting periods beginning on or after 1 April 2024, HMRC's guidance on qualifying costs says there is no restriction on claiming subsidised costs under the merged scheme or enhanced R&D intensive support. The staff, cloud and other qualifying costs of a grant-funded project can therefore also go into an R&D claim, as long as the work meets the tax definition of R&D.

A grant towards revenue costs is normally a taxable trading receipt, so it reduces the company's tax loss. Under enhanced support the payable credit is limited by the size of that loss, so a large grant can reduce the credit or leave the company without the trading loss the route requires. A capital grant towards equipment is normally outside trading income, and it reduces the cost on which capital allowances are given. Companies registered in Northern Ireland that claim enhanced support must also keep that claim within a three-year de minimis State aid limit. Read the grant's own terms on duplicate funding as well. Our R&D tax relief guide explains both claim routes in full.

Writing the application

Start with the competition brief, which sets the scope, eligibility, cost rules and questions, and go to the briefing event if there is one. Innovate UK only sends an application for assessment if it shows clear innovation, fits the eligibility and scope, answers every question and is different from projects it has already funded. Make these parts specific:

Project plan. Work packages, who does each one, and milestones with dates and outputs you can measure.
Innovation. What exists now, what the project will create and the technical risks involved.
Market. Who will buy the result, how you will reach them and what happens commercially after the project.
Team. The skills in the company and in any subcontractors.
Costs. A budget built from the funder's cost categories that matches the plan month by month.
Need for public money. Why the project would not happen, or would be slower or smaller, without the grant.

Innovate UK's cost guidance uses categories for labour, overheads, materials, capital usage, subcontracting, travel and other costs. Labour is built from each person's gross salary, employer National Insurance and pension, turned into a day rate. Overheads can be claimed as a flat 20% of labour costs with no further evidence, or calculated in detail and reviewed. Equipment is charged as depreciation for the months and share of time it is used on the project. A subcontractor must bring expertise the team does not have, and you must justify using one based outside the UK. After an award you produce an exploitation plan and a spend profile, and a monitoring service provider reviews progress against them.

Cashflow while you wait for grant claims

Because grants are paid in arrears, a grant-funded project needs more cash than the company's own share suggests. The figures below are illustrative. A company wins a grant covering 70% of a 12-month project with eligible costs of £300,000, excluding VAT, paid evenly at £25,000 a month. The maximum grant is £210,000 and the company's own share is £90,000. Each quarterly claim goes in near the end of the 30-day window, Innovate UK pays it about 30 days later, and the 10% retention is taken from the last quarterly claim.

Quarter 1 costs of £75,000 are paid in months 1 to 3. The claim for 70%, £52,500, is paid at the end of month 5, by which time the company has paid £125,000 of costs.
By the end of month 8 the company has paid £200,000 and received £105,000 from the first two claims, so it is funding £95,000.
Just before the quarter 3 payment arrives at the end of month 11, the company has paid £275,000 and received £105,000, so it is funding £170,000. The £52,500 payment brings that down to £117,500.
The last £25,000 of costs goes out in month 12, taking the figure to £142,500. The quarter 4 claim is £52,500, less the retention of 10% of £210,000, which is £21,000, so £31,500 arrives at the end of month 14 and the company is funding £111,000.
The £21,000 is paid once the final claim and reports are accepted, which leaves the company's net cost at its £90,000 share.

At its peak the company is funding £170,000 of costs itself, which is £80,000 more than its own £90,000 share. A monthly forecast that shows this gap before you apply gives you time to arrange investment or other finance, and Innovate UK's terms allow it to end a grant if the company cannot pay its debts as they fall due. Our budget and cashflow template can be used to model it.

Where to look for grants

Finance and support for your business on gov.uk, filtered to grants, your region and your stage
UKRI's funding finder, filtered to Innovate UK, for open and upcoming competitions
your local growth hub in England, Find Business Support in Scotland, Business Wales and Invest NI
Swoop's funding platform, which lets a business compare loans, grants and other finance

Swoop Finance Limited is a credit broker authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting may receive a referral fee from Swoop if a facility completes. Our funding page explains how we help you prepare the forecasts and records that funders ask for, and our startup funding guide compares grants with loans and equity.

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Common questions

Do grants have to be paid back?

A grant does not have to be paid back as long as you keep to its terms. The funder can reclaim some or all of it if the terms are broken. Innovate UK's terms let it suspend, end or reclaim a grant in cases such as misuse of the money, false statements in the application, unsatisfactory progress on the project or the company being unable to pay its debts. Scottish Enterprise says some or all of its R&D grant may be repayable in certain circumstances. Innovate UK also asks for project records to be kept for 10 years and supplied within 20 days if requested.

Can we start the project before the grant is confirmed?

Starting early usually means losing grant on the work already done. Innovate UK will not pay for costs incurred before the project's agreed start date, and it tells successful applicants not to start before they receive its email giving permission to start. Scottish Enterprise and Business Wales both exclude projects where the work has already started. If timing matters, set a realistic start date in the application and plan your cash around the time it takes to receive an offer, complete project set-up and sign the grant offer letter.

Is grant income taxable?

A grant towards day-to-day costs is normally taxable as a trading receipt. HMRC's Business Income Manual says grants that meet revenue expenditure are normally trading receipts, and grants that meet capital expenditure normally are not, although a capital grant reduces the expenditure on which capital allowances can be claimed. For a loss-making startup, a taxable grant reduces its tax loss. That can reduce an R&D claim under enhanced support, where the payable credit is limited by the size of the loss, so model the grant and the claim together.

Can we claim R&D tax relief on costs a grant has paid for?

You can for accounting periods beginning on or after 1 April 2024, as long as the work meets the tax definition of R&D. HMRC's guidance says there is no restriction on claiming subsidised costs under the merged scheme or enhanced R&D intensive support. The grant still affects the claim, because a revenue grant is taxable income that reduces the trading loss, and enhanced support depends on that loss. Companies registered in Northern Ireland that claim enhanced support also have to stay within a de minimis State aid limit, and the grant's own terms may have rules on duplicate funding.

What is Minimal Financial Assistance?

Minimal Financial Assistance is an exemption in the Subsidy Control Act 2022 that lets public bodies give small subsidies without a full subsidy control assessment. A business can receive up to £315,000 of it over the current financial year so far and the two financial years before. The funder must tell you in writing that the award is given this way and what it is worth, and you confirm in writing that it will not take you over the limit. Keep a record of each award for at least three years, because every later award on this basis counts towards the same limit.

How long does it take to receive grant money?

Innovate UK pays grants quarterly in arrears, so the money for a quarter's costs arrives after that quarter has ended. Claims must be submitted within 30 days of the end of the quarter, and Innovate UK normally pays within 30 days unless it needs more information, so a payment can arrive around two months after the quarter closes. It also holds back 10% of the maximum grant until the final claim and reports are in. In the worked example in this guide, the cash the company has to find peaks at more than two quarters of project costs.