The UK Government has recently announced £1.25bn of support for start-up/early-stage businesses. This consists of a £500m Future Fund, of which the Government will contribute £250m in partnership with the British Business Bank also providing £250m. A further £750m of funding for research and development via loans and grants will be provided by government through Innovate UK and targeted at SMEs.

The UK is a world leader in innovation and technology but because start-up technology businesses do not have historic profits, or developed assets, they are generally unable to access traditional lending structures, including finance through the Coronavirus Business Interruption Loan Scheme (CBILS). Instead, these entities typically rely on early stage investment through private investors including angel investors and venture capital firms.

Innovate UK

£200 million of grant and loan payments for existing Innovate UK customers is to be accelerated, although an opt-in is required, and an extra £550 million will also be made available to increase support for existing customers. £175,000 of support will be offered to around 1,200 companies that do not currently receive Innovate funding.

Future Fund

The Future Fund, with applications open from Wednesday 20 May, provides start-up/early-stage entities with access to convertible loans of between £125,000 and £5,000,000. These loans convert at a subsequent funding round at a discount of 20% on the equity value. Criteria for accessing these loans are:

  • The business is an unlisted UK registered company
  • The company needs to have raised £250,000 from private investors in the previous five years
  • The Government commitment needs to be at least matched by investment raised from private investors
  • The funds are partially ring-fenced so that the Government’s money cannot be used to repay other borrowings, pay bonuses or placement fees.

Fledgling companies that do not have a history of raising money will not qualify for the funding. And for many businesses the challenge of attracting the investment from private investors required for the Government to match their contribution will remain.

The loans will convert at a discount of 20% to the prevailing market price in the event of a qualifying funding round. At the end of three years the loans are redeemable at a premium of 100% to the par value of the loan.

State Aid & R&D Tax credits

Funding from Innovate UK, and COVID-19 related support measures, is deemed as State Aid. Any research and development project for which State Aid is received is treated as subsidised and therefore not eligible for SME tax relief in respect of R&D. Care should be taken that the benefit of money received from this support package is not outweighed by the benefit of future R&D tax credit claims.

If you have any questions or would like to discuss the impact of Coronavirus on your business, please get in touch with your usual Campbell Dallas contact.


The information in this update should not be regarded as financial advice. This is based on our understanding on 19 May 2020. Laws and tax rules may change in the future.