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Just for Startups: Grants, Incentives & Tax Reliefs

Author Charlie BraithwaiteCharlie Braithwaite

7 min read
Money Talk

Startups are at the heart of the UK economy, so know that you’ll never walk alone with the government supporting you through grants, and tax incentives.

Just for Startups: Grants, Incentives & Tax Reliefs

Startups are at the heart of the UK economy, contributing an estimated £196BN annually to the UK economy. Every hour, there are reportedly 76.8 new startups registered in the UK, and 64% of the British workforce hope to one day set up their own business. Since we are on this topic, Osome can assist you with startup registration in the UK.

The message is clear: the UK is a startup hotbed.

The UK government recognises this, and is keen to promote entrepreneurship throughout the country—there are currently 143 different government incentives available to British startups.

If you own a startup, you might ask yourself “Are there grants for small business startups?” or “How to apply for business startup grants?” Let’s examine the most prominent of these in more detail. This list is far from exhaustive—for more information, check out our detailed UK tax reliefs and incentives guide.

UK Tax Reliefs for New Startups

There are a number of tax reliefs currently available to UK startups. Either way, they’re a fantastic opportunity for new companies looking to keep some of their hard-earned cash.

Let’s take a look at some of the most prominent tax reliefs out there for UK startups.

Enterprise Management Incentives

What is it?

Enterprise Management Incentives (also known as EMIs) allow companies with assets valued under £30 million to offer share options to their employees.

Why they’re valuable?

With the war for talent raging on, startup owners need to find a way to incentivise the best and brightest to come work for their company. That’s where EMIs come in. While startups likely won’t be able to offer large salaries right off the bat, they can instead entice potential employees by handing out valuable shares.

If the company does well in the future then these employees may well receive large financial compensations. Imagine if one of Apple’s first employees received a 1% share in their company—given its current valuation of US$2 Trillion, that means they’d now be worth US$ 20 Billion (~£15.4 Billion)!

What are the special conditions?

Companies can only offer share options up to the value of £250,000. Plus, they can only do this within a 3-year period from the start of the EMI—so it’s by no means a long-term arrangement. There are also certain industries that are entirely excluded from EMIS, including:

  • Banking
  • Farming
  • Property development
  • Legal services
  • Ship building

However, it’s worth noting that you may have to pay Capital Gains Tax if you sell the shares.

Sahil has just launched his fresh vegetable delivery company. He’s looking to hire Roger, an experienced accountant, but he can’t hope to match Roger’s current salary. Through an EMI, however, he is able to offer Roger a generous amount of share options in his rapidly growing company—and he ends up successfully convincing him to come on board.

Enterprise Investment Scheme

What is it?

The Enterprise Investment Scheme (EIS) uses income tax relief to encourage individual investors to invest in your company. Investors are eligible to claim back up to 30% of the amount that they invested in tax relief.

Why is it valuable?

Startups need to get off the ground—fast. This means that they need money, and so to receive this financial backing, they often have to attract outside investors. However, investing in a startup is risky business, so many investors might initially seem hesitant. That’s where ESI comes in.

What are the conditions?

There are quite a few.

  1. The 30% relief only applies to investments worth up to £1 million. Moreover, the money that your company receives must be used for qualifying business activities.

This includes:

  • A qualifying trade: Most trades qualify except for any businesses that operate in coal or steel production, farming, leasing activities, legal or financial services, property development, running a hotel or nursing home, generation of energy, production of gas or other fuels, exporting electricity, banking, insurance, debt, or financing services.
  • Preparations to carry out a qualifying trade (so long as this commences within 2 years of the investment). This might include renting an office space, hiring staff, buying machinery, or any other activity that is deemed necessary for your business to begin operating.
  • Research and development (R&D) that is expected to result in a qualifying trade.

2. Once you’ve received this money, you have to spend it within 2 years—and you can’t use it to buy another business (whether in whole or in part).

3. Your company is eligible to use the scheme so long as you:

  • Have a permanent base in the UK.
  • Don’t have gross assets worth more than £15 million before shares are issued (and no more than £16 million after they’re issued).
  • Aren’t trading on any recognised stock exchange.
  • Aren’t controlled by another company.
  • Don’t expect to close after completing one (or a series of) projects.

Dara has asked some of his wealthy ex-colleagues to consider investing in his new software startup. They’re slightly hesitant, but he tells them they’d be able to claim back 30% of everything they invest in the form of income tax relief. This means that if they were to invest £30,000, they’d be able to claim back £9,000 worth of tax relief.

UK-Wide Government Loans for Startups

Tax reliefs are great, but do you know what’s even better? Cash in the bank. Fortunately, there is a wide range of government loans to help startups get up and running as seamlessly as possible.

Start Up Loans

What is this?

The company in charge of these loans, Start Up Loans, is a subsidiary of the British Business Bank—and it’s in charge of rolling out the UK government’s Start Up Loans programme to eligible UK-based startups.

The loans themselves range in value all the way from £500 to £25,000, and they’re subject to a 6% interest rate per annum. They’re due to be repaid in full 5 years from the date on which they were issued (if not even earlier).

Why is it valuable?

As great as the money itself is, Start Up Loans are incredibly valuable for a wide number of reasons. First, there are no application fees involved. Second, you receive 12 months’ worth of free expert mentoring and guidance after receiving the loan. Third, there’s a fixed interest rate of 6% per annum—meaning you won’t suddenly have to face unexpected interest rates due to market volatility.

What are the conditions?

These loans only apply to businesses that have been trading for fewer than 24 months. In order to apply, you must first lay out in detail what you intend to use the loan for, and provide both a business plan and a detailed cash forecast.

What’s more, there are certain activities that are ineligible for the scheme. They include:

  • Debt repayment.
  • Training qualifications/education programmes.
  • Investment opportunities that don’t directly relate to an ongoing, sustainable business.

For more information, check out the eligibility criteria.

Aish is looking to launch her new eCommerce business. However, she first needs to hire a few employees, buy up a domain name, purchase materials (laptops, stationery, etc.) and invest in software subscriptions. She decides to apply for a Start Up Loan and receives £7,000 that she can repay in five years’ time.

The Prince’s Trust Enterprise Programme

What is it?

The Prince’s Trust Enterprise Programme helps young people between the ages of 18 to 30 set up their own business, whether they live in England, Wales, Scotland, or Northern Ireland. To date, they’ve helped 86,000 young people. Their in-person programmes take place at a range of centres around the country. You’ll meet mentors, fellow like-minded entrepreneurs, and go through the entire process of building a business from scratch.

When it comes to business finances, The Prince’s Trust works with the aforementioned Start Up Loans company to offer 1 - 5 year-long loans valued between £500 to £50,000 (at a rate of 6.2% APR).

Why is it valuable?

Startup owners often struggle to raise business-critical finance. Unfortunately, this is even harder for young people who generally lack the experience necessary to encourage potential investors.

The Prince’s Trust Enterprise Programme provides young people with the opportunity to access this much-needed financial backing, along with extensive training and mentoring. For example, the programme’s mentors try to ensure that your business model is as viable as possible before you go ahead and launch.

What are the special conditions?

Not only do you have to be aged between 18 and 30, but you also have to be unemployed (or working fewer than 16 hours a week) at the point of application, and have no more than 9 employees.

Lottie has just left university, where she had set up a successful student-run food stall selling fresh fusion cuisine. She wants to turn this into a fully-fledged business but is unsure of where to start or where to find initial capital. She checks out The Prince’s Trust Enterprise Programme. She’s accepted and goes on a year-long programme to build her business, with the help of trusted advisors and a small, low-interest loan.

Get your startup running, today

Starting up your own business might seem like a daunting task. You have to work out whether or not your idea will work, try to find people ready to help you build your dream business, and last but not least, find the funds necessary to get it off the ground.  

Thankfully, there are a number of UK-wide tax reliefs and loans to incentivise—and support—new entrepreneurs. Don’t go into it alone. Instead, work with the government to turn your dream into a reality and become the next big thing.

If you’ve just begun your own company, congratulations! It’s time for you to learn more about how OSOME helps small business to register their companies and provides crucial bookkeeping and accounting services for UK entrepreneurs which they’ll need to thrive.

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