New financial support for innovative firms hit by Coronavirus

Last night the Chancellor announced a package of £1.25 billion funding, across two incentives, for innovative firms hit by Coronavirus. Below is an overview based on the initial announcement, but we expect detailed guidance to follow in due course. Here is a link to the current Treasury guidance which was published 20 April  

The first is a £750 million expansion of Innovate UK’s funding for the most Research & Development intensive small and medium-sized businesses. Innovate UK will accelerate up to £200 million of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis. An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments will be made by mid-May.

BEWARE – INNOVATE UK GRANTS CAN REDUCE YOUR R & D TAX RELIEF: If you currently make a Research & Development Claim on your corporation tax return under the SME Scheme, careful planning on the complex interaction with an Innovate UK grant is essential. If you receive certain Innovate UK grants, you are only eligible to claim Research & Development tax relief under the large company RDEC Scheme, where the tax relief is much lower than the SME Scheme. Please contact our specialist R & D team if you would like advice in this regard.

The second incentive called the Future Fund is a new £500 million loan scheme for high-growth firms, to ensure they receive the investment they need to continue during the crisis. This will be delivered in partnership with the British Business Bank and launches in May and will initially run until the end of September. The fund will provide UK-based companies with between £125,000 and £5 million convertible loan from the government, with private investors at least matching the government commitment. These government loans will automatically convert into equity on the company’s next qualifying funding round, or at the end of the loan if they are not repaid. To be eligible, a business must be an unlisted UK registered company that has previously raised at least £250,000 in equity investment from third party investors in the last five years. The government is committing an initial £250 million in funding towards this 50:50 match funding scheme, with the remaining £250 million to be raised by the applicants from private investors. Treasury has published a partial term sheet setting out the minimum terms that the government investment will require. Further detail on eligibility criteria and fund operation will be published in due course.

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