General guidance - Innovate UK

Contents

Funding rules

Innovate UK provides funding to support and stimulate innovation in the UK economy. We do this by encouraging businesses to work with other commercial and research organisations.

We largely require that projects are led by businesses. Other types of organisation can apply in collaboration with a business partner.

Innovation is never easy, especially if it involves multiple organisations or is in the early stages of taking a new idea to market. Sometimes numerous businesses might need to be brought together with the help of a research and technology organisation (RTO) leading the project.

This can happen if:

  • no business in the consortium has the capacity to lead the project
  • collaborative research is to be undertaken by businesses who are at the same point in the value chain.

If businesses are at the same point in the value chain, the work must be essential to lay the foundations for the growth of an early stage industry. This type of project might lead to the development of new industry procedures or measurement standards

Innovate UK recognises the opportunity for innovation projects to be led by RTOs. This is subject to them being in collaboration with two or more companies. They need to have been developed to make sure that those with the right skills are doing the right work at the right time. This means that those in the consortium that are best placed to lead and deliver the overall project can do so. This will allow businesses (and especially SMEs) to focus on their contribution, route-to-market and exploitation.

The funding rates you can receive will depend on the size and type of your organisation and your role in the project. Organisations fall into three categories:

  • businesses
  • research organisations
  • public sector organisations or charities undertaking research activity.

Business

A business is defined as an organisation undertaking economic activities.
The definition of micro, small and medium-sized enterprises (SME) used by Innovate UK is set out in the European Commission Recommendation of 6 May 2003.

A large business in this context means any enterprise which is not an SME.

Research organisation

When referring to research organisations, Innovate UK uses the definition from the Framework for state aid for research and development and innovation which states:

“‘research and knowledge dissemination organisation’ or ‘research organisation’ means an entity (such as universities or research institutes, technology transfer agencies, innovation intermediaries, research-oriented physical or virtual collaborative entities), irrespective of its legal status (organised under public or private law) or way of financing, whose primary goal is to independently conduct fundamental research, industrial research or experimental development or to widely disseminate the results of such activities by way of teaching, publication or knowledge transfer. Where such entity also pursues economic activities, the financing, the costs and the revenues of those economic activities must be accounted for separately. Undertakings that can exert a decisive influence upon such an entity, for example in the quality of shareholders or members, may not enjoy a preferential access to the results generated by it.”

Within Innovate UK, this means:

  • universities – higher education institutions
  • non-profit research and technology organisations (RTOs), including catapults
  • public sector organisations (PSOs)
  • public sector research establishments (PSREs)
  • research council institutes
  • research organisations (ROs)
  • charities.

This list is not comprehensive and is subject to change and exceptions. Research organisations undertaking non-economic activity will be funded as follows:

  • universities: 80% of full economic costs – as set out by the Joint Electronic Submission (Je-S) system
  • all other research organisations: 100% of eligible costs.

Research organisations should be non-profit distributing to qualify. They should explain how they will disseminate the output of their project research as outlined in the application.

Research organisations which are engaged in economic activity as part of the project will be treated as business enterprises for the purposes of funding.

Full economic cost (FEC) and Je-S

Universities, higher education institutions (HEIs) and other research organisations which are registered on the Joint Electronic Submission (Je-S) system should submit their costs through this. Submitted and approved costs should then be added onto the specific application. These will then be submitted.

Only 80% of the FEC is allowable as eligible costs for Je-S applicants. The remaining 20% should not be shown on the finance table or forms. Research costs submitted through Je-S must be in line with business and participation rules.

Public sector organisation or charity

Public sector organisations and charities can work with businesses to achieve innovation through knowledge, skills and resources. These organisations must not take part in any economic activity or gain economic benefit from a project. They can apply for 100% of funding for their eligible costs under the following conditions:

  • they are undertaking research (this may be experimental, theoretical or critical investigation work to gain knowledge, skills or understanding vital to the project)
  • they meet requirements for dissemination of their project results and they state in the application how they will do this
  • they include their eligible costs for research purposes in the total research organisation involvement
  • they make sure they are not applying for funding towards costs which are already being paid by the public purse such as labour and overheads.

Third sector

Third sector organisations are primarily voluntary and community, such as associations, self-help groups, mutuals and cooperatives. Third sector organisations can be non-funding partners in a project.

Get help with these definitions

Email: support@innovateuk.ukri.org
Telephone: 0300 321 4357

Subsidy Control (and state aid where relevant)

Innovate UK supports UK based businesses to invest in research, development and innovation.

The support we provide is consistent with the UK’s international obligations and commitments to Subsidy Control.

These include:

What is a subsidy?

Innovate UK uses the EU-UK TCA definition of a subsidy which:

  1. Is given by a public authority. This can be at any level; central, devolved, regional or local government or a public body.
  2. Makes a contribution (this could be a financial or an in kind contribution) to an enterprise, conferring an economic advantage that is not available on market terms. Examples of a contribution are grants, loans at below market rate, or a loan guarantee at below market rate or allowing a company to use publicly owned office space rent free. An enterprise is anyone who puts goods or services on a market. An enterprise could be a government department or a charity if they are acting commercially.
  3. Affects international trade. This can be trade with any World Trade Organisation member or, more specifically, between the UK and a country with whom it has a Free Trade Agreement (GOV.UK). For example, if the subsidy is going towards a good which is traded between the UK and the EU this could affect trade between the EU and the UK. It is not necessary to consider whether the subsidy could harm trade, just whether there could be some sort of effect. Subsidies to very local companies or a small tourist attraction are unlikely to be a problem as this is unlikely to affect international trade.

Subsidy (or State aid in EU context) confers an advantage on a selective basis to organisations that take part in economic activity, which distorts or threatens to distort competition.

The BEIS Subsidy Control regime (or where relevant EU State aid regulations) are designed to prevent unfair advantages and distortion of trade.

See Complying with the UK’s international obligations on subsidy control (GOV.UK).

More information on the principles of awarding subsidies can be found in the BEIS guidance.

Each Innovate UK or UKRI competition will have its own eligibility and scope criteria.

What types of subsidy are prohibited?

There are types of subsidy which are prohibited. Two are prohibited under WTO rules for goods, while the UK-EU TCA and some FTAs prohibit subsidies of this kind to both goods and services:

  1. Subsidies dependent on export performance – for example giving a subsidy to a baker on the condition that they export a certain quantity of bread to another country.
  2. Subsidies that are dependent on domestic inputs usage- for example giving a subsidy to a baker on the condition that they use 50% UK flour in their product.

The UK has agreed a number of FTAs, including the UK-EU TCA, which also prohibit the following two types of subsidies:

Subsidies in the form of unlimited state guarantees to enterprises, where the subsidy giver places no limit on the amount of debt or liabilities covered, or where the duration of the guarantee is similarly unlimited.

Subsidies granted to “ailing or insolvent enterprises” (defined as enterprises highly likely to fail in the short to medium term in the absence of subsidy), where there is no credible restructuring plan to restore the business in question to long-term profitability.

Financial viability and eligibility

Innovate UK is unable to award organisations that are considered to be in financial difficulty. All applicant organisations are subjected to financial viability and eligibility checks to ensure they are suitable for public funding.

How do EU State aid regulations now affect Innovate UK awards?

For awards made from 01 January 2021 onwards, the majority are subject to the BEIS Subsidy Control regime which ensures compliance with the UK-EU TCA and other UK international trade commitments, not EU State aid regulations. EU State aid rules now only apply in certain limited circumstances:

  • aid that is granted within scope of the Northern Ireland Protocol
  • payments made under EU Structural Funds such as the European Regional Development Fund (ERDF) – any award made under European Commission State aid regulations is subject to notification to the European Commission

Undertakings in difficulty

NB In the unusual circumstance of an award having to be made under the EU GBER regulation, the applicant must pass ‘undertaking in difficulty’ checks as defined by GBER (2014).

Further information on State aid

The State aid branch of the Department for Business, Energy and Industrial Strategy (BEIS) has lead responsibility within the UK for coordination and development of State aid policy.

The BEIS State aid guidance on GOV.UK has further information. You can also visit the European Commission’s information on State aid. At Innovate UK we also have our own State aid policy.

If the European Commission considers a business or any undertaking to have been in receipt of State aid due to ineligibility for exemption under GBER, that undertaking is likely to be required to repay any aid received to the value of the gross grant equivalent.

Special Drawing Rights (SDRs) and EU de minimis awards

The UK-EU TCA has agreed on funding allowances under Special Drawing Rights (SDRs).

For organisations applying under SDR, the total subsidy which can be given to each organisation is up to a maximum of 325,000 SDR (approximately £350,000) over a rolling three-year fiscal period. This includes cumulation of grants under the EC’s de minimis regulation for the same period. The maximum total under the EC regulation is 200,000.

This is for all project types and for most purposes, including operating aid. You can learn more about the chapter on subsidies in the BEIS summary guidance and de minimis regulation on GOV.UK.

The following are not funded by Innovate UK under SDRs or de minimis and this is made clear again for each individual funding opportunity:

  • purchase of road freight transport vehicles
  • enterprises in fishery and aquaculture
  • top up awards made under approved State aid schemes, resulting in a circumvention of the aid intensities set out in the rules attached to such schemes – In these cases, it can only be awarded towards separate eligible costs
  • subsidies dependent on export performance, for example giving a subsidy to a manufacturer linked to exporting a certain tonnage or amount of product to another country
  • subsidies contingent on the use of domestic content, for example stating that the beneficiary must use …% UK manufactured inputs in the manufacture of their product.

Enterprises in the processing and marketing of agricultural products where the:

  • amount of aid is fixed to the price or quantity of products purchased from primary producers or put on the market by the enterprise
  • aid passes entirely or in part to primary agricultural producers
  • aid is for export, meaning the establishment and operation of a distribution network or expenditure linked to the export activity.

Enterprises applying for this funding will not need to go through the same level of financial viability and eligibility tests, nor will the undertaking in difficulty test apply.

If you see an error in this guidance

Email: support@innovateuk.ukri.org

We do our best to ensure that the information published in this guidance is up to date and accurate. Contact us if you want to draw something to our attention.

This guidance is not a substitute for taking independent legal advice on your eligibility status, before applying for funding. Every applicant is responsible for securing their own independent legal advice to ensure they are lawfully eligible.

Innovate UK accepts no liability for actions arising from the use of our guidance. Innovate UK cannot be held responsible for the contents of any pages referenced by an external link.

De minimis aid

De minimis aid is a term used to describe small amounts of State aid that the European Commission expects will have a negligible impact on trade and competition. These do not require Commission approval.

The total de minimis aid which can be given to each organisation is £200,000 over a three-year fiscal period. This is for all project types and for most purposes, including operating aid. You can learn more from page 20 of the BEIS State aid manual and from the de minimis regulation.

The following are not typically funded by Innovate UK under de minimis aid but this is made clear on an individual competition basis:

  • purchase of road freight transport vehicles
  • undertakings in fishery and aquaculture
  • top up awards made under approved State aid schemes, resulting in a circumvention of the aid intensities set out in the rules attached to such schemes. In these cases it can only be awarded towards separate eligible costs.

Undertakings in the processing and marketing of agricultural products where:

  • the amount of aid is fixed to the price or quantity of products purchased from primary producers or put on the market by the undertaking
  • the aid is conditional on being partly or entirely passed on to primary producers
  • aid for export to third countries or EU member states, meaning the establishment and operation of a distribution network or expenditure linked to the export activity.

For undertakings active in the road freight transport sector, the de minimis ceiling is £100,000.

The undertakings in difficulty test does not apply under de minimis rules.

Last updated: 10 September 2021

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