Innovation funding: what it is and how it can help you

Innovation funding is any structured route that helps you cover the cost and risk of developing and commercialising new products, processes, or services. In the UK, that usually means three joined-up areas: grants and innovation finance, R&D tax relief, and IP-driven relief such as Patent Box.

Some support is project-based and competitive and some arrives through the tax system after you spend. Some only becomes useful once your protected technology is generating taxable profits.

Innovation funding can extend your runway, help you fund technical risk, speed up delivery, and strengthen investor confidence. It can also give you a clearer story about what you are building, why it matters, and how the work will reach the market. The reality is that none of these routes is automatic. Funders and HMRC both expect credible evidence, clear costs and a project that meets the relevant rules.

What we mean by “innovation funding”

When we talk about innovation funding, we mean funding and tax incentives that support genuine R&D, product development, commercialisation and IP-led growth. That can include grants, where you do not give up equity; repayable innovation loans; R&D tax relief linked to qualifying R&D expenditure; and Patent Box relief on profits from qualifying patented inventions.

For UK businesses and research organisations, the Innovation Funding Service is one of the main places to search and apply for government-backed innovation competitions. UK-based businesses or research organisations may be able to compete for funding to research and develop a process, product or service, test innovation ideas and collaborate with other organisations.

A strong application usually needs a clearly defined problem, a credible technical and commercial plan, the right team, realistic costs, and a measurable route to impact. Applicants may be asked about contribution to the UK economy, society and the environment, including jobs, turnover, R&D expenditure, new collaborations and new or improved products, services or processes.

Where each funding route fits in the innovation journey

The most useful funding strategy starts with your journey. A feasibility-stage project has different needs from a revenue-generating product with patents in place. The aim is to match your stage, risk profile, cash position and IP strategy to the right mix of funding options.

Early-stage exploration and feasibility

At the beginning, you are usually trying to prove whether an idea is technically possible and commercially worth pursuing. Typical routes can include feasibility grants, collaborative R&D programmes, Knowledge Transfer Partnerships and early procurement opportunities.

This stage is about focus. You need to explain the problem, why it matters, what is uncertain and how you will test it. Funders do not expect a finished product, but they do expect a credible plan.

What good looks like here is a clear project scope, a capable team and measurable outcomes. If you are working with a university, research organisation or Catapult through a Knowledge Transfer Partnership (KTP), the partnership structure and business contribution also need to be clear. UKRI (UK Research and Innovation), the national funding agency, highlights the importance of project costs, business contributions, and complete and accurate submissions within its KTP guidance.

Build and iterate: turning prototypes into a product

Once the feasibility case is stronger, the challenge changes. You may be turning a prototype into a product, developing a pilot, improving reliability, or proving that a system can work under real operating conditions.

Development grants, Innovate UK funding, Innovation Loans and investor-linked programmes can fit here. Innovation Loans are aimed at UK micro, small and medium-sized enterprises and are designed to provide flexible, patient capital to support business growth through innovation.

At this point, funders will usually look closely at delivery. They want to see technical risk, but not confusion. Your application should explain the work packages, test plans, milestones, budget assumptions and delivery capacity.

The strongest applications tend to be specific. They show what will be tested, what success looks like and what decisions will be made at each stage. That makes the funding case easier to assess and the project easier to manage.

Scale-up and commercialisation

As you move towards market adoption, the funding case becomes more commercial. You may still be solving technical problems, but funders will expect more detail on customers, pricing, manufacturing, regulation, supply chains, governance and the delivery team.

Scale-up competitions, supply chain programmes, sector-specific grants, Innovation Loans and strategic investment programmes may all be relevant. The right route depends on your market, your timing and the type of support you need.

This is where a joined-up approach matters. A grant may support a defined project, but it will not usually fund every cost in the business. An Innovation Loan may help with late-stage R&D, but it still needs a credible repayment story. R&D tax credits may support qualifying R&D costs, but the claim needs to meet HMRC’s definition and process requirements.

IP and profitable growth

Patent Box usually becomes relevant once patented technology is generating taxable profits. It can still be worth planning much earlier.

Patent Box allows qualifying companies to apply a reduced 10% rate of Corporation Tax to profits earned from patented inventions. To use it, a company must be liable for Corporation Tax, make a profit from exploiting patented inventions, own or exclusively license the patents, and have undertaken qualifying development on them.

What good looks like here is clear IP ownership, a sensible product and revenue map, and records that connect the patented technology to income and costs. Kene’s Patent Box guidance makes the same point: Patent Box and R&D relief can support the full journey from development to commercialisation, but only if you plan the data, ownership and evidence early.

The three pillars explained simply

Grants

Grants are competitive awards for defined projects. By leveraging this non-equity funding, businesses can fund research without sacrificing ownership. The funding is tied to the project, the scope, the eligible costs and the terms of the competition.

Funders usually want to understand four things: the innovation, the impact, the delivery plan and the value for money. Cashflow is a common misunderstanding. Grants are paid by instalments, usually quarterly and in arrears, after a claim is submitted for eligible costs that have been incurred, invoiced and paid.

Match funding and collaboration rules also matter. If you need to contribute part of the project cost, or if the competition requires a partner, that needs to be planned before you apply. A strong grant application is not just a persuasive narrative. It is also a practical delivery plan.

Book a complimentary funding assessment with the team to talk to us about your project.

R&D tax credits

R&D tax credits are the term many businesses use for R&D tax relief. They are a tax incentive linked to qualifying R&D expenditure. The rules are specific, and they do not simply reward anything that feels innovative in a commercial sense.

For tax purposes, R&D takes place when a project seeks an advance in science or technology. The activities must directly contribute to achieving that advance through the resolution of scientific or technological uncertainty.

For accounting periods beginning on or after 1 April 2024, the merged R&D expenditure credit scheme and enhanced R&D intensive support replaced the old RDEC and SME schemes. HMRC guidance says the merged RDEC rate is 20%, and that ERIS is for loss-making R&D intensive SMEs that meet the intensity condition.

This is where compliance matters. Many claims need an Additional Information Form, and some first-time or infrequent claimants need to submit a Claim Notification Form before claiming. Kene’s record-keeping guidance rightly focuses on clear, written evidence, traceable costs and a claim file that is easy to verify.

Book an assessment with the team.

Patent Box

Patent Box is a Corporation Tax relief for profits linked to qualifying patented inventions. It is often missed because it needs profit, IP structure and data. It is not something that automatically follows from having a patent.

The calculation depends on the qualifying income, relevant costs, ownership or licensing position and, in many cases, the R&D fraction. In plain English, you need to show which profits relate to the patented invention and how those profits have been worked out.

Patent Box planning should start earlier than most companies think. If you wait until the patent is granted and the product is already generating revenue, you may have to reconstruct income, cost and IP records under pressure. It is much better to build a simple evidence trail as the product develops.

Book a complimentary assessment with the team.

How to combine grants, R&D tax credits and Patent Box without tripping up

The three routes can work together, but they need to be mapped carefully. Combining support is not the same as claiming twice for the same cost.

A simple stacking example across two to three years

In year one, you might use a feasibility grant to test whether the technology is viable. At the same time, you start recording the technical uncertainty, the options considered, the tests run, the failures and the decisions made. This helps with grant reporting and may support an R&D tax claim later.

In year two, the project moves into development. You apply for a development grant or Innovate UK funding and continue tracking your qualifying R&D activity. You separate grant-funded costs, residual company-funded costs and non-qualifying commercial work. This makes the R&D tax position easier to assess.

In year three, the patent is granted and product revenue starts to grow. Patent Box planning becomes more relevant. You review which income is connected to the patented invention, which company owns or licenses the IP, and whether the R&D and cost records support the calculation.

This is the joined-up approach Kene already uses across its own positioning: understand what you are building, recommend the best funding route for your situation, and build the case properly so you can move forward with confidence.

The rules and risks to watch

The biggest risk is treating each route in isolation. A grant can affect the R&D tax outcome. R&D tax relief can affect the data you need for Patent Box. Patent Box can fail in practice if IP ownership, revenue flows and development evidence do not line up.

For current R&D tax relief, HMRC says you cannot claim both ERIS and the merged RDEC scheme for the same expenditure.

Subsidy wording also matters. You need to know whether a grant is treated as subsidy, what expenditure it supports and how that interacts with the relevant R&D tax rules. This is an area where specialist input can be valuable because small wording differences can change the analysis.

Timing is another practical issue. A grant may be paid in arrears. R&D tax credits are normally claimed through the Corporation Tax process. Patent Box usually matters once profits arise. Your funding plan should reflect when cash actually lands, not just the headline value of each route.

What to put in place now to make funding easier later

Evidence that works for both funders and HMRC

Good evidence is easier to build during the project than after it. Your records should explain what was uncertain, what the team tried, what worked, what failed and what changed because of the results.

For grants the evidence should show progress against the scope, milestones and impact case. For R&D tax credits, it should connect the scientific or technological uncertainty to the work done and the costs claimed. For Patent Box, it should connect qualifying IP rights, income streams and costs.

The same habits help across all three routes. Keep short project summaries. Record key technical decisions. Keep test results and design iterations. Map staff time and third-party costs to activities. Reconcile claims back to payroll, invoices and the ledger.

Internal roles and accountability

A strong funding process needs clear ownership. The technical lead should own the project narrative because they understand the uncertainty, the decisions and the evidence. The finance lead should own the numbers because they understand payroll, invoices, accounting periods and reconciliations.

The two teams need to work together during the year. That is how you avoid the year-end scramble, where finance has the costs but not the R&D story, and the technical team remembers the work but not the evidence trail.

A simple monthly rhythm usually works better than a large clean-up exercise at the end. Review active projects, confirm what changed, capture key evidence and check whether costs are being coded in a useful way.

How to choose the right mix for your business

The right mix depends on your stage, risk profile, cash position, timeline and IP strategy.

If you are still exploring the technical case, a feasibility grant or collaborative route may be the best-fit approach. If you are closer to market and need patient capital, an Innovation Loan may be worth reviewing. If you are already spending on qualifying R&D, R&D tax credits should be considered alongside grants, not after them.

Patent Box becomes more important when patents and profits are in view, but planning should start before that point. IP ownership, licensing, product mapping and cost tracking can all affect whether the relief is practical and worthwhile.

Specialist input can be valuable where the facts are more complex, including subsidised R&D, group structures, overseas activity, contracted R&D, investor-linked funding, and cases where IP sits in a different company from the trading business. In these situations, the value is not just identifying funding. It is building a compliant, well-documented position from the start.

Common myths that hold teams back

“We’re too small” is a common concern, but size does not decide everything. Some routes are designed for SMEs, and R&D tax credits depend on whether your company, project and costs meet the eligibility criteria.

“It’s just normal product development” can also be too quick a conclusion. Some product development is routine, but some involves genuine scientific or technological uncertainty. The question is not whether you were building a product. It is whether the project sought an advance in science or technology and whether the uncertainty could be readily resolved by a competent professional.

“We already got a grant, so R&D tax credits don’t apply” is too simple. Grants can affect the analysis, but they do not automatically mean there is no R&D tax position to review. The answer depends on the grant terms, subsidy status, project costs, accounting period and scheme rules.

“Patent Box is only for pharma or large companies” is also too narrow. Patent Box is linked to qualifying patented inventions and relevant profits, not one sector. It can apply more widely than many teams expect, but it needs the right IP, ownership, development and data position.

How we help

We help you choose the right innovation funding route, then build the case properly. Our team brings together STEM, sector and tax expertise to support innovation across high-impact sectors, from AI, automation and clean energy to life sciences, software, advanced manufacturing and space.

We connect grants, R&D tax credits and Patent Box into a clear funding strategy, with well-documented evidence behind every submission. We’ve helped UK businesses secure more than £164m in funding and delivered over 2,000 claims across 17+ sectors.

If you’re planning a grant application, investing in R&D, or generating revenue from patented technology, book a complimentary assessment with our funding advisors. We’ll help you understand what support may be available, what is realistic and what to do next.

Book an assessment with the team or check your eligibility to understand whether your business may be able to access grants, R&D funding or other Patent Box incentives.