The ins and outs of government small business grants

Starting up

13 May 2020

UPDATE: This page was updated on 13th May 2020 to reflect new UK Government financial help available to small businesses as a result of disruption caused by COVID-19. To find the most up to date information relevant for your business, please visit the Government’s Coronavirus Support Finder.

Securing funding for your small business can be challenging – and knowing where to begin can be tricky. With lots of steps and plenty of stages, every grant has its own set of rules, processes and procedures that you have to wrap your head around before applying.

Here, we place the spotlight on the government grants for small businesses that could save you money, reduce start-up costs, and help your business hit the ground running.

Government support for businesses affected by coronavirus (COVID-19)

Following the unprecedented impact of the coronavirus pandemic on both individuals and businesses around the world, the UK Government announced on 17 March 2020 a new package of relief measures which aim to help businesses which have been impacted or which have had to close. Full and complete guidance can be found here.

Coronavirus Business Interruption Loan Scheme

Launching from 23 March 2020, the new temporary Coronavirus Business Interruption Loan Scheme will primarily support small and medium-sized businesses to access short-term cash flow support from accredited lenders.

The new scheme can provide up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow.

The UK Government will provide accredited lenders with a guarantee of 80% on each loan, in order to give confidence that they can continue to provide finance to SMEs. The government will not charge businesses or banks for this guarantee.

All UK-based businesses will be eligible for the scheme so long as their annual turnover is less than £45 million.

The full rules of the Scheme and the list of accredited lenders is available on the British Business Bank website.

Income tax and VAT deferrals during the coronavirus

The UK Government has also announced that VAT and income tax payments for businesses and the self-employed are to be automatically deferred as a result of COVID-19.

From 20 March to 30 June 2020, VAT payments for all UK businesses will be deferred automatically, while for self-employed individuals self-assessment income tax payments due on 31 July 2020 will be deferred until 31 January 2021. All self-employed individuals are eligible and there will be no penalties or interest for late payment charged during the deferral period.

There will also be an extension to the HMRC’s Time to Pay scheme, which gives businesses extended time to make any missed payments on their tax bill. You may be eligible if you currently pay tax to the UK Government and have any outstanding tax liabilities. Call the HMRC’s dedicated helpline on 0800 0159 559.

Small businesses with employees impacted by coronavirus

If you have employees that you’re worried about having to lay off as a result of coronavirus, you’ll be able to access funding under the Coronavirus Job Retention Scheme to continue paying part of your employees’ salary during this crisis.

To access the scheme, you’ll need to designate affected employees as ‘furloughed workers’ and notify your employees of this change. Furlough effectively means a leave of absence that you’re granting to your employees during the coronavirus pandemic. HMRC will reimburse 80% of workers’ wage costs, up to a cap of £2,500 per month, for employees you have placed on furlough.

If you’re paying any of your staff sick pay as a result of COVID-19, the Government are introducing legislation to allow small businesses and employers to reclaim up to two weeks of Statutory Sick Pay (SSP).

All employers with fewer than 250 employees as of 28 February 2020 will be eligible, and employees will not have to provide a sick note from their GP in order to prove the claim, but may have to provide an isolation note from NHS 111.

For more information on how to apply for reimbursement, visit the GOV.UK coronavirus information hub.

Self-employed individuals unable to work as a result of COVID-19

If you’re self-employed or a member of a partnership in the UK and have lost income due to coronavirus, you can claim a grant through the Coronavirus Self-employment Income Support Scheme.

This scheme will allow you to claim a grant worth 80% of your trading profits up to a maximum of £2,500 a month. While the grant will be subject to Income Tax and National Insurance contributions, it does not need to be repaid.

Your trading profits will be calculated based on and average of your last three years of self-assessment tax returns. Your trading profits must also be no more than £50,000 and more than half of your total income.

To qualify, you must be a self-employed individual or a member of a partnership and you must:

  • have submitted your Self Assessment tax return for the tax year 2018 to 2019
  • have traded in the tax year 2019 to 2020
  • be trading when you apply, or would be trading if not for coronavirus
  • intend to continue to trade in the tax year 2020 to 2021
  • have lost trading profits due to coronavirus
  • be able to prove to HMRC that your business has been adversely affected by coronavirus

The scheme launched on 13 May 2020, with the first payments being made in June 2020. If you’re not eligible for Statutory Sick Pay and your ability to work has been impacted by coronavirus, you can make a claim for Universal Credit or an Employment and Support Allowance.

You may be able to claim against certain elements of Universal Credit for things like the costs of childcare or housing if you have savings of less than £16,000. While the Employment and Support Allowance could give you money to help with living costs if you’re unable to work if you’re self-employed.

For more information visit GOV.UK.

Retail, leisure and hospitality businesses affected by coronavirus

For businesses in the retail, leisure and hospitality trades, the UK Government has announced both a cash grant of up to £25,000 as well as a business rates payments ‘holiday’ in England for the 2020 to 2021 tax year.

These initiatives will be available to shops, restaurants, cafes, drinking establishments, cinemas, hotels and similar accommodations and live music venues in England.

The Retail and Hospitality Grant Scheme allows businesses in these sectors with a property that has a rateable value of £15,000 and under to receive a cash grant of £10,000, while properties with a rateable value of between £15,000 and £51,000 will receive a grant of £25,000.

 The business rates holiday will apply automatically to your council tax bill in April 2020, while eligibility for the Retail and Hospitality Grant Scheme will be determined by your local authority.

 As business rates are set at a local level, similar initiatives are being launched by devolved administrations across the UK. Additional links for information about specific relief measures being enforced by the Governments of Scotland, Wales and Northern Ireland can be found here.

Where do I get money for starting a business?

One of the most important decisions you’ll make when starting out on your business adventure is deciding on how you’ll fund it. Your first thought may be to head to a bank for a business loan, but high interest rates and strict terms and conditions can make this an expensive option in the long-term.

Thankfully, there’s plenty of alternative routes you can take to raise that all-important capital to get your business off the ground. 

  • Start-up loans
    A type of soft loan, start-up loans can offer start-ups or young businesses lower interest rates or longer repayment periods. The government-backed Start Up Loans Company is among the most popular soft loans. It offers small businesses the option to borrow £25,000 at a fixed rate interest of 6% per year over a repayment term of up to five years, as well as 12 months of free mentoring. Try to ensure you have a healthy contingency budget so that you can keep up with repayments if the unexpected happens.
  • Seed Enterprise Investment Scheme (SEIS)
    The Seed Enterprise Investment Scheme is designed to help raise money for your business when it starts trading by offering tax reliefs to investors buying shares in your company. You can receive a maximum of £150,000 through SEIS investments provided that your business meets certain qualifying conditions.
  • Enterprise Zones
    Enterprise Zones are designated areas throughout England that provide tax breaks and Government benefits to support new and expanding firms. Businesses that operate within Enterprise Zones receive benefits ranging from 100% business rate discounts of up to £275,000 per business over a 5-year period to 100% enhanced capital allowances to help companies make large investments.

Has one of these routes caught your attention? Find out more about these funding options and more with our guide to alternative funding for small businesses to help you decide on the path that’s right for you.

What is a small business grant?

From cash awards to tax reliefs, government grants come in all shapes and sizes. In general, government business grants can be split into the following types:

  • Equity finance
    These can offer start-ups and young businesses reductions on income tax and investments if they’re less than two years old and have fewer than 25 employees.
  • Direct grants
    This is when money is granted directly to a new business to cover start-up essentials, including equipment and staff training. Many grants will expect your business to provide 50% of the value of the grant.
  • Soft loan
    These tend to be government-backed and can offer repayment terms and conditions that may be more generous than those on offer through banks and building societies. This could mean that your business pays lower interest rates or enjoy longer repayment periods.

Where to look for small business grants

Depending on where you’re located in the country, there are many funding and grant options available to your business. If you’re looking for a comprehensive list of grants available, visit the Government’s business finance support finder to search for grants and funding options relevant to your business size, locality and industry.

  • Business grants in England
    From the North East to the South West, there are 38 Local Enterprise Partnerships (LEPs) that can provide funding and advice to help boost your business in your local economy. They are business-led partnerships between local authorities and local private sector businesses designed to drive economic growth and job creation, improve infrastructure, and better workforce skillset within the local area.
  • Business grants in Scotland
    Depending on where you’re based in the country, your business could be eligible to apply for grants on offer by the Highlands and Islands Enterprise and Scottish Enterprise as well as local councils. For a detailed list of funding options that could be available to your business in Scotland, visit the Scottish Government’s Funding Opportunities, which provides access to over 600 funding options and grants.
  • Business grants in Northern Ireland
    For Northern Irish businesses, grants on offer include NISPO II’s Proof of Concept grant (which is designed for pre-launch start-ups), and Invest NI grants for more established companies. Visit Enterprise Ireland for additional support and information on where you can find grants for your business.
  • Business grants in Wales
    Keep your eyes peeled on Business Wales’ finance locator to find grants that your business could be eligible to apply for as well as detailed information on the application process and how to best manage business’ finances.

What business grants are available to small businesses?

If you’re looking for new resources but are struggling to locate the funds, below are a few of the small business grants that you could apply for.

  • Regional Growth Fund (RGF)
    If your business is looking for funding of less than £1 million, you may be able to apply for the Regional Growth Fund. RGF programmes are run by national or local organisations and can offer grants or loans to eligible business that meet specific criteria.
  • Resource and training grants
    There are a number of small business training grants available to help small businesses.
    • Innovation Vouchers
      Supplied by the government via Innovate UK, your business may be eligible for claims of up to £5,000 towards the cost of expert advice. Whether it’s seeking professional advice on your latest idea, tech advice or how to effectively utilise intellectual property, training grants for small businesses encourage businesses to seek out knowledge that could help them develop further.
    • The National Apprenticeship Service
      Funding amounts depend on your business industry, with funding for 16-18-year olds beginning at 100%. Your business may also have access to an Apprentice Grant of up to £1,500 (10 employees max) for businesses hiring apprentices aged 16-24. Visit the National Apprenticeship Service for more information.
  • Grants for young people
    There are grants available to help nurture the young future of the UK business world. The Princes Trust’s Enterprise programme is set up to equip 18-30-year-old business owners with access to low-interest start-up loans, mentoring and advice.
  • Start-up grants for unemployed entrepreneurs
    The New Enterprise Allowance is designed to support potential entrepreneurs aged 18 or over in receipt of Jobseeker’s Allowance, Universal Credit, Employment or Support Allowance, and lone parents, long-term sick, and disabled individuals. If you’re successful in receiving the grant you’ll receive a mentor to provide you advice. Once your business plan has been approved, you may get a weekly allowance worth up to £1,274 over 26 weeks.

Are small business grants taxable?

In general, cash grants tend to be taxable because they’re a form of income. The amount you’re left over with after subtracting the relevant allowances and expenses will likely be liable to tax.

Keeping on top of taxes can prove difficult when you’re already spinning the many plates that running a business involves. To lend businesses a helping hand, the government offers schemes designed to help reduce the costs of paying taxes on business grants.

Tax relief for small businesses

    • Business rates relief
      If your business occupies one property with a rateable value of less than £15,000, your business could be eligible. Read our guide on small business rates relief to find out more.
    • Employment Allowance
      This allowance could reduce your employers’ (secondary) Class 1 National Insurance each time you run your payroll until the £3000 has gone or the tax year ends (whatever is sooner). Visit here for terms and conditions.
    • Research and Development Tax Credit
      This tax relief scheme is designed to encourage small businesses to spend more money and time on researching and creating new products and services or honing existing ones by reimbursing them via a cash payment or corporation tax reduction. Read our guide on this tax scheme for terms and conditions.

Working out the tax on business grants is filled with loads of grey areas, so if you’re ever unsure, it might be worth your while seeking professional help to ensure everything is above board.

How to apply for a small business grant

Applying for small business grants can be tricky but there are simple steps you can take to keep your stress levels to a minimum and (hopefully) increase your chances of bagging that money to better your business.

  • Be organised
    Planning is everything when it comes to attempting to secure additional funding for your business. By laying the groundwork, you’ll get a better idea of exactly what you’re looking to achieve with this additional money and how much you’re likely to need. 
  • Get in touch
    Interested in applying for a specific grant? Get in touch with the grant awarding body to discuss your chances of making a successful application and to chat over any aspects you’re not too sure about.
  • The early bird catches the worm
    Some grants have a limited amount of funds available, so submitting early could raise your chances of securing additional funding for your business.
  • Perfect your business plan
    Grant awarding bodies will want to see extensive plans showing how your business could develop if you’re successful in attaining the grant. The more in-depth the information you provide, the easier grant-awarding bodies can understand how they could help you, so spend time showing how the funding could impact your business for the better.
  • Get to grips with grant objectives
    Make sure that you show how your business meets the specific qualifying criteria that the grant awarding body is looking for. Take time to learn why the grant is being awarded so that you can tailor your application accordingly.
  • Explain how you’ll use the grant
    Highlight in your application how the grant will grow your business – whether it’s being used to purchase new equipment or upskill staff – and how these developments will benefit your service and market.
  • The larger the grant, the trickier the application
    A general rule of thumb is that the greater the grant funding award, the more complicated the eligibility and application process will be. As such, plan your time accordingly so that you can devote plenty of time to your application.
  • If at first you don’t succeed: try, try again
    You’re your business’s biggest champion, so even if you don’t get the grant you had your sights set on, dust yourself off, ask for feedback and continue to apply for small business grants to help turn your business dreams into a reality. Some of the world’s biggest companies have struggled to clinch funding the first-time round, so don’t be disheartened.

Successfully gaining a grant for your business could give your company the boost it needs, but securing funding involves preparation, thorough investigation and a tenacious spirit. If you’ve spotted a grant that you think your business could benefit from, get in touch with the awarding body and contact those in the know to increase your chances.

And if you’re unsuccessful, don’t be disheartened. Ask for feedback, keep an eye on GRANTfinder and apply what you’ve learned to new grant opportunities that could help your business work harder.

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