Innovation drives growth, improves productivity, and helps the UK to position itself as a hub of new ideas, development, and learning – and so is an extremely important recipient of government funding. But are the government doing enough to support those in the tech sector?

In early December, surrounded by incredible views of the City of London at Duck & Waffle, we brought together a range of people to discuss whether government funding initiatives are doing enough to encourage innovation in the technology sector. In a group made up of SMEs who had previously claimed R&D relief, SMEs who were interested in claiming R&D relief, venture capital experts, lawyers, and industry experts, the conversation was rich and varied. Here, we share our key takeaways from the event, and what we think should happen next. 

A gap in support?

Many in the room felt that government support drops off after an organisation has moved out of the initial start-up phase, and that it returns once an organisation is established and can access later-stage venture capital or private equity funding. This is leaving a gap in the middle, exactly at the point where companies are looking to commercialise R&D and build out products.  It was therefore felt that the UK is potentially leaving smaller companies unable to invest in new innovations. 

There are some great support schemes available for innovative businesses, and good examples here are EIS and SEIS, which are seen as great incentives. However, they do kick in later in an organisation’s development, and many struggle to survive in the gap before accessing the funding to allow them to grow.

The same is true of later stage venture capital investment: There are many investors ready to support SMEs, but they are looking for proof of sales before they will commit to the investment. Those in the room articulated that there is a gap to help businesses get to the point of long-term growth plans/sales plans.

Using the limited support available to businesses effectively is key to trying to bridge this innovation funding gap. We have helped businesses develop their strategies for investment, and plan where and when they can lean on Government support to assist with innovation. 

UK Government Grants

There are various grants that organisations can apply for to support their funding. However, Innovate UK grants can take a lot of time, and with the high level of competition for funding, the route is seen too uncertain for many businesses. The resource needed to complete submissions is high, and SMEs often feel their people’s time is best spent in the business itself. Large businesses, in contrast, have large, dedicated teams of grant writers. Many of our attendees floated the idea of automatic funding: Innovate UK could set the criteria, and if you meet this, you automatically receive funding. 

The attendees also referenced the differences between the UK and Europe, where organisations make more use of grants. This is largely due to the perceived reluctance of UK Universities to collaborate with SMEs, instead, choosing to focus on their relationships with large corporations. It was noted that in Europe, Fraunhofer Institute-style institutions provide the bridge between academic research and commercial exploitation, and the UK lacks this structure.

The key to success with grants is planning. We can help identify the right time to apply, and when to look for support. Leaving things too late can scupper a submission and having someone else to assist with the submission preparation can limit the impact on the business. 

R&D Tax Credits

It soon became clear that SMEs might not be investing due to the uncertainties in schemes such as R&D tax relief, because they are finding the current system too complicated. There was general agreement that the R&D tax credit scheme is too uncertain and complicated at the current time to be a real driver of investment. With many changes in play, such as the reduced-benefit new merged scheme and the compliance check campaign, there is much confusion around what can be claimed, and what exactly HMRC want to see in claims. Earlier this year, we saw Get Onbord win against HMRC at tribunal, and as a result tech businesses are confused about HMRC’s current behaviour, when the tribunal seemed to present a very different picture. 

We have revised and improved our claim preparation process to block new lines of questioning we have seen from HMRC, and to reflect the recent tribunal rulings. If this is an area in which you require support, our team of R&D specialists will be able to run through any risk areas that might need to be addressed.  

It was noted by our attendees that having a grant already in place helps with submitting an R&D claim as the R&D has been pre-checked. Attendees felt that also having pre-approval on R&D claims could help to improve the scheme; however, it was noted that quite often R&D crops up on projects so pre-approval might not work in this case. 

Conclusion

Tech businesses are still sticking with the UK as a great place to develop an innovative business. The industrial strategy green paper shows that the current Government understands that to invest, businesses need certainty and clarity around the support they can access. In addition, the compliance check campaign appears to have overcome some initial teething issues, and hopefully companies will soon feel confident enough to build R&D claims back into their budgeting. However, new initiatives such as R&D claim pre-approval might be the game changer that many businesses are looking for. We await HMRC’s proposals for the scheme with interest.