SMEs across UK see a boost in share of innovation grant funding

With the contribution made by SME innovation to the economy under the spotlight, new analysis shows their share of Innovate UK funding has ballooned in the past year.

A study by innovation funding specialist Catax shows1 that, of all innovation grant funding that went to business projects started this year, the proportion awarded to SMEs rose to 88.2 per cent up 16.4 percentage points from 71.8 per cent in 2021, itself little changed on 2020.

For projects begun in 2022, SMEs were awarded a total of £333,779,450, while larger companies were awarded a total of £44,829,828. For 2021, SMEs secured £452,042,158 while larger firms were awarded £177,159,659.

Innovate UK is the UK’s national innovation agency. The way SMEs are handed the lion’s share of business funding is testament to the important research and development they undertake.

And yet it is SMEs that have recently come under attack from the Government. Chancellor Jeremy Hunt announced in the Autumn Statement last month that the amount of tax relief SMEs receive would be reduced for expenditure incurred from 1st April 2023.

SMEs are currently allowed to deduct an extra 130 per cent of qualifying costs from their profits but this will reduce to 86 per cent (plus the normal 100 per cent deduction).

For loss-making companies, SMEs will be entitled to a tax credit worth up to 10 per cent of the total surrenderable loss, instead of the current 14.5 per cent. Conversely, the Research & Development Expenditure Credit (RDEC) scheme for larger companies was made more generous.

Laura O’Neill, grants manager at innovation funding specialist Catax, said: “These results show very clearly how smaller companies are fundamentally important to the drive for innovation taking place in the UK. The vast majority of innovation grant money awarded to businesses is won not by large corporations but by SMEs.

“Yet the contribution SMEs make to the UK economy is at serious risk of being overlooked. Many of them are the larger companies of tomorrow, whose journey to success and growth is often obscured by the inevitable interest of other companies and subsequent acquisition.”

Innovate UK also awards grants to charities, public sector organisations, academic institutions, Public Sector Research Establishments (PSREs), Research & Technology Organisations (RTOs) and catapults. These were excluded for the purposes of the study.

By Mark Adair – Correspondent, Bdaily