Supporting growth in the tech industry through innovation funding

Thanks to ForrestBrown – innovation incentives consultant, for this guest blog on how innovation funding supports growth in the tech industry.

SMEs – long a source of creative talent and thought – have a vital role to play in the UK’s innovation ecosystem. Helping them access the funds they need to grow is equally important and something that ForrestBrown has a proud tradition of supporting.

Whether that funding is invested in new facilities or bolstering the workforce, it can have a significant impact not only on the business itself, but the wider economy. Spillover benefits include driving economic growth, helping local and national economies to maintain competitive advantage and fostering a local or regional culture of innovation. 

It is a sentiment that was underscored by the Chancellor in her first Budget, when she committed to continued R&D spend and pledged significant funds to the life sciences, aerospace and automotive sectors – all areas where we see strong appetite from tech firms to access funding.

It’s also a sentiment shared by Ric Hill, CTO and Co-Founder of Ghyston – a software business – based in Bristol, who says, “R&D incentives don’t generally affect whether we do innovation or not – small companies like us have to be creative and try new things in order to survive and thrive – but they do dramatically affect how much of it we can do. And the more innovation we do, the more future impact we can have.”

Innovation funding can take many forms, including:

• Grants: an award – typically from the government or other public body – to facilitate business growth;
• Patent Box: a tax deduction for businesses deriving profits from the IP that they have developed, protected and taken to the market; and
• Capital allowances: tax deductions that UK businesses can claim on eligible capital expenditures, such as machinery and equipment.

Perhaps the most well-known though is R&D tax relief. Depending on the size and profitability of your company, and the accounting period for which you are claiming, it offers a benefit of up to 27% of your qualifying R&D expenditure across relevant projects.

If your company is taking a risk by attempting to resolve scientific or technological uncertainties, then you may be carrying out qualifying activity. This could include creating new products, processes or services, or changing or modifying an existing product, process or service. Typical eligible R&D costs include staff and subcontractor costs, materials and consumables including heat, light and power and certain types of software.

The landscape for claiming R&D tax relief has become increasingly complex in recent years owing to legislative change, a reduction in the headline rate of relief for SMEs and increased compliance activity by HMRC. However, with the right advice, the relief remains worthwhile.

Partnering with an adviser such as ForrestBrown – with its multidisciplinary team of experts – can help SMEs navigate this highly technical area of practice. We can assess and prepare claims with rigour and help firms move from a retrospective to a proactive approach to R&D, where R&D is captured in real time – enabling firms to forward plan.

As Hill says: “Having used ForrestBrown for our R&D claims for many years now, we find it much easier to understand and predict what our likely claim levels will be going forward. This gives us a great advantage when it comes to business and cashflow planning – and allows us to invest in the future with confidence.”

In the 20 years that the relief has existed in the UK, it has been used to support the growth of countless SMEs – including many in the tech sector. That trajectory looks set to continue, not just in the UK, but overseas, where, according to a recent OECD report, 33 out of 38 OECD countries offered tax relief for R&D expenditures in 2023, up from 19 in 2000.  

As the government begins to deliver on its growth mission, we remain committed to supporting SMEs – both locally and nationally – with their growth. Unlocking the innovation funding toolkit can yield significant benefits that don’t just stop with the business but extend far beyond.

As Hill sums up: “Innovation fuels growth for all businesses, but for SMEs the potential effect is huge: many multiples of turnover and profit in short periods of time. Given how much of the UK economy is made up of SMEs, it’s clear that government policies strongly promoting more R&D will undoubtedly have a dramatic impact on GDP in the longer term.”