How do business grants work?

A business grant is public money for a defined project that you keep as long as you meet its conditions. It pays a share of the eligible costs, you fund the rest, and it reaches you as claims paid after you have spent the money.

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What a grant pays for

A grant comes from a public body for a set purpose: research and development, capital investment in a particular area, cutting energy use, training staff or selling overseas. The funder might be a government department, Innovate UK, a devolved development agency, a council or a mayoral authority. Each scheme publishes its own rules on who can apply, which costs count and what share of them it will pay, and you apply in competition with other businesses. The funder picks the projects that score best against its criteria.

Central government schemes are listed on GOV.UK Find a Grant, and our grant finder shows every open one sorted by closing date. Devolved and local schemes sit on their own sites, covered on the pages for England, Scotland, Wales and Northern Ireland. Swoop’s platform also matches businesses with grants as part of a funding search.

A grant pays for a project. Running costs, existing debts and work started before the offer letter fall outside it unless the scheme says otherwise.

Match funding

Grants pay a percentage of eligible costs, called the intervention rate. In Innovate UK’s recent competitions a micro or small business can receive up to 70% of eligible costs for feasibility studies and industrial research, and up to 45% for experimental development, which is work closer to market. Scottish Enterprise’s capital grant pays up to 40% for a small enterprise. The rest is match funding, and it has to come from your own cash, a loan or investors.

The funder checks that the match funding exists. An application that says the company will pay its share out of future profits invites the question of what happens if those profits arrive late, and assessors look for cash in the bank, an agreed facility or an investment that has completed. A loan found through a funding search can supply the match for a limited company or LLP. Some schemes tie the two together: Innovate UK’s Investor Partnerships competitions pay the grant only when an investment from an approved investor partner closes alongside it.

How the money arrives

Illustrative example

A small company runs a 12-month experimental development project with £120,000 of eligible costs, spent evenly over four quarters, on Innovate UK terms: a 45% grant, paid quarterly in arrears, with 10% of the maximum grant held back until the final claim.

Eligible project costs
£120,000
Grant at 45%
£54,000
Your share, the match funding
£66,000
Spent in the first quarter before any grant is paid
£30,000
Held back until the final claim and accountant’s report
£5,400
Grant paid while the project runs
£48,600
The company carries the whole £30,000 of the first quarter before its first claim is paid, and part of every later quarter until each claim clears. Innovate UK’s terms also say the retained 10% and the final payment are lost if the final claim and report arrive more than 90 days after the project ends. A grant can leave a company short of cash at the point it is spending most, and some businesses arrange working capital finance alongside one for that reason.
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Claims and evidence

Each claim lists the eligible costs you incurred and paid in the period, matched line by line to the budget the funder approved. You back it with invoices, payroll records, timesheets for staff working on the project and bank statements showing the payments left your account. Larger grants need an independent accountant’s report on the claims.

Moving money between budget lines, changing the project’s scope or replacing a key person needs the funder’s written approval first. Monitoring carries on after the money is paid: jobs created, sales made and products launched, reported for as long as the offer letter says.

Grants, loans and research and development tax relief compared

GrantBusiness loanR&D tax relief
RepaidKept if you meet the conditionsRepaid with interestKept, subject to an enquiry by HM Revenue & Customs
How you get itCompetitive application to a funderApplication to a lender, who decidesClaimed in the company tax return
What it coversA share of eligible project costsAny purpose the lender agrees toA percentage of qualifying research spending
When the money arrivesClaims paid in arrears during the projectOn drawdown, before you spend itAfter the accounting period ends
TaxRevenue grants are taxable; capital grants reduce capital allowancesInterest is a business costThe merged scheme credit is taxable trading income
See business loans and R&D grants.

Subsidy control and Minimal Financial Assistance

A grant from a UK public body to a business is a subsidy under the Subsidy Control Act 2022, and the public body has to give it under one of the Act’s routes. Smaller awards use Minimal Financial Assistance. Section 36 lets a public body give an enterprise up to £315,000 of minimal financial assistance across the current financial year and the two before it without the full subsidy assessment.

Before paying, the public body must tell you in writing that the award is Minimal Financial Assistance and ask you to confirm that it will not take you over the limit. Your company and the companies linked to it, such as a holding company and its subsidiaries, count as one enterprise and share one £315,000 limit. Councils also give some business rates relief this way, and that counts toward the same total, so keep a record of every confirmation you sign.

Clawback

When a grant has to be repaid

An offer letter can let the funder recover money if you break its terms: spending outside the approved budget, failing to deliver the project, selling assets the grant paid for inside a set period, moving the activity away, or losing the jobs the grant was given for. Read the clawback clause before you sign, and check it again before selling the business or its assets.

How a grant is taxed

HM Revenue & Customs taxes grants under the normal rules for business income. Its Business Income Manual says a grant that meets revenue costs, such as salaries or interest, is a trading receipt and is taxed with the rest of the profit. A grant toward capital spending is normally outside trading income and reduces the cost on which you claim capital allowances. A grant with no stated purpose is treated as revenue.

Buy a £100,000 machine with a £40,000 capital grant and your capital allowances are worked out on £60,000. Ask your accountant which year a large revenue grant falls into.

Questions people ask

Do you have to pay back a business grant?

You keep a grant as long as you meet the conditions in the offer letter. The funder can recover some or all of it if you spend it on costs outside the approved budget, fail to deliver the project, sell assets it paid for inside the set period or lose the jobs it was given for. Read the clawback clause before you sign.

Is a business grant taxable?

Usually, yes. HM Revenue & Customs treats a grant toward revenue costs, such as wages or interest, as a trading receipt taxed with your profit. A grant toward capital spending is normally outside trading income and reduces the cost on which you claim capital allowances. A grant with no stated purpose is treated as revenue.

Can I get a grant to start a business?

National grants for starting a business are scarce, and the government’s Start Up Loans scheme is a loan. Local schemes exist: Go Succeed in Northern Ireland, Business Gateway advice in Scotland and council schemes in England and Wales. Check our grant finder and read funding a start-up.

Can I claim R&D tax relief on a project that had a grant?

For accounting periods beginning on or after 1 April 2024, yes. HM Revenue & Customs guidance says there is no restriction on claiming for subsidised costs under the merged scheme or enhanced R&D intensive support. Earlier periods had subsidised expenditure rules that pushed grant-funded costs out of the small company scheme.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Grants

How do I write a grant application?

Scoring, the project plan, budgets, match funding, additionality and a checklist.

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Innovate UK grants

Competitions open now, funding rates, assessor scoring and innovation loans.

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Research and development grants

R&D grants, R&D tax relief, and how one affects the other since April 2024.

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Business grants in England

Central government, mayoral authorities, councils and growth hubs, and where to look.

Read more →
All business funding

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Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

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