Small Business Grants: How HMRC Is Shifting Support In 2026
- Adil Akhtar
- Dec 14, 2025
- 11 min read
Small Business Grants: How HMRC is Shifting Support in 2026 in the UK
When you run a small business, every penny counts. Grants can feel like a lifeline—offering financial support without the hassle of borrowing. But if you’ve sought these out before, you’ll know that the landscape is always shifting. So what’s changing in 2026 when it comes to small business grants linked with HMRC? And how can you best position yourself to take advantage?
I’ve been working with UK businesses through various tax seasons and economic cycles, and I’ve seen firsthand how changes in government funding and tax relief programs affect entrepreneurs like you. Let’s unpack what the new year brings in terms of grant support, what you need to know, and how to make the process work for your business.
The Changing Face of Small Business Grants in 2026
If you’ve been keeping an eye on government announcements, you might have caught that HMRC and related government bodies are refocusing grant support in 2026. The pandemic-era flood of widespread grants is now giving way to more targeted, strategic funding.
Instead of the broad emergency support schemes, the government is pivoting towards grants that encourage innovation, green initiatives, skills development, and digital transformation. This shift reflects the UK’s economic priorities—towards sustainability and competitiveness in a changing global economy.
For you, this means grants might feel more specialised or focused. Generic business support grants will be fewer and further between, but targeted grants offer more potential if your business fits within key growth areas.
Why Is HMRC Influencing Grant Support Differently?
HMRC isn't traditionally a grant distributor but plays a key role in how businesses interact with tax reliefs and funding incentives. From 2026, HMRC is increasingly aligning tax relief schemes and grants to encourage compliance and smart investment.
For example, tax reliefs like the Research and Development Relief (R&D Relief) and the Super-deduction capital allowances work alongside grant schemes targeting innovation and green investment. HMRC’s role is to ensure that any financial assistance through grants aligns with tax rules and complements eligible reliefs rather than overlapping or conflicting.
This is an important development because it means grant money might come with specific tax implications, reporting requirements, or eligibility rules tied closely to HMRC standards.
What Types of Small Business Grants Are Available in 2026?
Here are the main categories of government-backed grants you can expect to find relevant to small businesses in 2026:
● Innovation and R&D Grants: These encourage investment in new products, services, or processes. Businesses can receive funding to cover part of their research costs. This often works alongside R&D tax credits through HMRC.
● Green and Sustainability Grants: The UK government aims for a low-carbon economy by 2050, so grants are available to businesses investing in energy efficiency, renewable energy, or carbon reduction measures.
● Skills and Training Grants: Helping businesses upskill their workforce, these grants support apprenticeships, specialised technical training, and digital skills development.
● Local Enterprise Partnerships (LEP) Grants: Local councils and LEPs continue to offer targeted grants supporting business growth and regeneration in specific regions.
● Digital Transformation Grants: Designed to help small businesses embrace technology, improve ecommerce capabilities, or adopt digital marketing.
Practical Steps for Accessing Grants in 2026
Securing a grant takes more than just knowing what’s available. Here’s what you should keep in mind:
● Start Early: Grant applications often have set deadlines or funding rounds. Planning ahead gives you time to gather the necessary documents and build solid proposals.
● Know Your Eligibility: Every grant has specific eligibility criteria—such as business size, sector, location, or type of project. One example: The Innovation Grants under the UKRI Innovate scheme usually require your R&D activity to involve scientific or technological advancement.
● Keep Your Records Spot-On: HMRC is tightening checks, especially where tax relief is claimed alongside grants. Maintain clear financial records, detailed project descriptions, and timesheets if applicable.
● Match Grants to Your Tax Strategy: If you’re claiming R&D tax credits, it’s worth understanding how grant funding might reduce the qualifying costs you can claim in your tax return. Consultation with a tax professional can prevent costly errors.
● Seek Local Support: Local Enterprise Partnerships and Growth Hubs provide guidance on grants and business support tailored to your area. They can be a great help navigating what’s available near you.
HMRC Tax Considerations When Receiving Grants
A common question I hear is: "Do I have to pay tax on grant money?" The answer depends on the nature of the grant and how you use the funds.
● Taxable vs Non-Taxable Grants: Most business grants count as income and must be declared on your tax return, affecting your taxable profits. However, some specific grants (for example, to cover specific capital costs) might be treated differently.
● Impact on R&D Relief: If you get a government grant related to R&D, you generally need to adjust your R&D tax credit claim to exclude the grant-funded expenditure — otherwise, you could be over-claiming.
● Capital Allowances & Grants: If a grant helps you purchase business assets, you may need to reduce your capital allowances claim for those assets.
● VAT Considerations: Generally, grants are outside the scope of VAT, but you should verify on a case-by-case basis.
The key takeaway: grants have ripple effects on your tax position, so record everything carefully and consider expert tax advice before filing returns.
Recent Deadlines and What to Watch for in 2026
Some important dates and details to keep in mind this year:
● The UKRI Innovate Grant rounds typically open early in the year and close by spring, with deadlines varying by competition. Keep a close eye on the GOV.UK website for announcements.
● Green recovery grants under schemes like the Clean Growth Fund may have rolling applications but with limited funds.
● Apprenticeship grant deadlines vary by region but often align with academic terms, so planning ahead in autumn is wise.
● Remember, your 2025/26 tax return deadline for self-assessment (if applicable) is 31 January 2027. This gives you time to reconcile any grant income or tax relief claims from this year.
Real-World Example: Navigating Grants and Tax Relief Together
Consider Jane, who runs a small engineering firm in Manchester. She wanted to develop a new energy-efficient product and applied for an Innovate UK grant that would cover some prototype costs. Jane also planned to claim R&D tax relief on her unclaimed research expenses.
By coordinating with a tax advisor, she submitted her grant application and prepared detailed project documentation. When she received the grant, they adjusted her R&D tax credit claim to exclude expenses covered by the grant, avoiding any compliance issues.
As a result, Jane secured two types of financial support successfully without any unexpected tax bills or HMRC questions—support that helped her business grow confidently.
Additional Resources You Can Turn To
To stay on top of grant opportunities and understand tax implications, these official sources are invaluable:
● GOV.UK Grants and Funding: The central hub for all government grants —
● HMRC R&D Tax Credits: Details and guidance —
● Local Enterprise Partnerships: Search your area’s LEP for regional support —
● Innovate UK Funding Opportunities: The leading innovation grants body —
I Know This Can Feel Overwhelming—Here’s How to Tackle It
Small business funding and tax support can seem complicated, but breaking it down step-by-step helps you avoid pitfalls. Begin by clarifying your business goals: Are you aiming to innovate, invest in greener technology, or upscale your workforce? Then look for grants and tax incentives that align.
Document everything—from your grant applications to how you record expenses related to funded projects. When tax time comes, if you’re unsure how grants impact your returns, reaching out to a tax specialist or accountant can save you money and stress. It’s an investment that often pays dividends in peace of mind.
And finally, don’t forget to revisit government websites regularly—grant schemes evolve, deadlines pop up, and new opportunities appear. Staying informed keeps you ahead.
FAQs
Q1: Are small business grants in the UK always taxable as income for corporation tax purposes?
A1: Well, not quite—it's a common mix-up, but most grants do count as taxable trading income unless they're specifically for capital expenditure like buying equipment, in which case they might reduce your capital allowances instead. In my experience advising limited companies in the Midlands, I've seen owners overlook this and face unexpected bills; always check the grant terms on GOV.UK, and if it's revenue support, declare it in your CT600. For the 2025-26 tax year, keep receipts showing how funds were spent to justify any non-taxable treatment during an HMRC enquiry.
Q2: What happens if a grant reduces my R&D tax credit claim—how do I calculate the adjustment?
A2: Grants for R&D projects claw back part of your enhanced deductions, so you subtract the grant amount from qualifying expenditure before applying the relief uplift. Picture a software firm in Bristol I worked with: they got £20k grant on £100k spend, so their claimable R&D dropped to £80k, slashing their cash credit. Use HMRC's CIRD manual for the formula—it's straightforward once you tag expenses properly in your accounts. Double-check via your tax return software to avoid overclaims that trigger repayments plus interest.
Q3: Can sole traders claim grants alongside SEIS or EIS relief for investors?
A3: Absolutely, but the grant can't fund the same costs as investor-backed R&D, or it risks disqualifying the SEIS/EIS advance assurance. I've guided a couple of startups in Edinburgh through this pitfall— they ringfenced grant money for prototypes while EIS covered market testing. HMRC scrutinises this closely in 2026 with tighter notifications, so document segregated budgets meticulously. It's a smart combo if planned right, boosting cash without diluting investor perks.
Q4: How does receiving a grant affect my VAT registration threshold?
A4: Grants usually sit outside VAT scope, so they don't count towards the £90k threshold for 2025-26, unlike sales turnover. But if the grant reimburses VAT-inclusive costs, you might reclaim input VAT, pushing you over faster. A café owner client in Leeds hit this snag last year—her green retrofit grant included reclaimable VAT, accelerating mandatory registration. Track it separately in your VAT ledger, and use HMRC's online calculator to forecast.
Q5: What's the record-keeping period for grant-funded projects under new HMRC rules?
A5: You need six years from the end of the accounting period, but for grants with R&D links, it's potentially 12 years if enquiries arise. In practice, I've advised clients to hold digital folders with invoices, timesheets, and progress reports indefinitely—HMRC's digital shift means easy audits. One manufacturer in Sheffield dodged a £10k penalty by pulling up decade-old files; set calendar reminders to review annually.
Q6: Do regional grants from Scottish Enterprise interact differently with HMRC than English ones?
A6: Scottish grants often tie into devolved taxes like LBTT or non-domestic rates relief, but HMRC still governs income tax and CT treatment identically UK-wide. A Highland distillery I advised combined a local grant with R&D relief seamlessly, but they adjusted for state aid rules post-Brexit. Watch for cross-border quirks if trading England-Scotland; use the Scottish Government's grant finder alongside HMRC manuals for compliance.
Q7: If my grant application is rejected, can I still claim related preparatory costs as business expenses?
A7: Yes, costs like feasibility studies or advisor fees are generally deductible as trading expenses, even without the grant. I've seen freelancers in Manchester write off £2k in vein attempts, offsetting against profits nicely. Just ensure they're 'wholly and exclusively' for business—no personal angle—and log them pre-application. HMRC accepts this in enquiries if evidenced properly.
Q8: How do green grants impact capital allowances for energy-efficient assets in 2026?
A8: They typically reduce your AIA or full expensing claim by the grant proportion, so a £50k solar panel grant on £100k install means only £50k qualifies for 100% relief. A warehouse owner in Coventry learned this the hard way—forgot the offset, owed extra CT. Calculate via HMRC's CAA10000 guidance; it's worth it for the net savings if your marginal rate exceeds the funding gap.
Q9: Can partnerships claim grants, and how is the tax split among partners?
A9: Partnerships qualify like sole traders, with grants taxed as partnership income per profit shares in the SA800. One rural farming partnership I sorted allocated a £15k grant via their ratio, avoiding partner disputes. Update your partnership return promptly, and consider electing fixed shares if grants distort variable profits—keeps HMRC happy and harmony intact.
Q10: What if a grant comes with clawback clauses—how does that affect my tax return?
A10: Clawbacks are treated as negative income in the period repaid, potentially creating losses to carry back. A tech startup client repaid £30k mid-year due to project failure; we offset it against prior profits for a refund. Disclose via an amended return if already filed, with clawback letters as evidence—HMRC's been flexible but demands full transparency in 2026.
Q11: Are there grants specifically for women-led or BAME-owned small businesses in 2026?
A11: Yes, schemes like the Future Fund Women’s Founders or regional diversity pots prioritise these, with HMRC treating them as standard grants. I've helped a BAME beauty salon in Birmingham secure one without tax hiccups by matching to skills training. Eligibility often needs evidence like director demographics; apply via British Business Bank portals for the edge.
Q12: Does employing apprentices via a grant affect my Employment Allowance?
A12: Grants for apprenticeships don't impact the £5k allowance directly, but wage costs do qualify for the full PAYE relief. A bakery in Nottingham maximised this combo last year—grant covered training, allowance wiped NI. Confirm apprentice status via HMRC helpline; it's a double win for labour-intensive firms.
Q13: How do I report a grant received after my accounting period ends?
A13: Accrue it in the period awarded if conditions met, per SSAP 21—receipt timing doesn't dictate. One e-commerce trader I advised accrued a December grant in November accounts, smoothing profits. Use accruals consistently, or face smoothing enquiries; your accountant can tweak via note disclosures.
Q14: Can grants fund home office setups for remote small businesses?
A14: Local digital grants often cover this, but only business-use portion is non-taxable—say 40% of refurb costs. A consultant in Devon claimed a hybrid setup grant, deducting the rest via simplified expenses. Measure space rigorously; HMRC loves photos and floorplans in disputes.
Q15: What’s the penalty for late reporting of grant income to HMRC?
A15: Starts at £100 fixed for late Self Assessment, escalating to 5% of tax due daily after three months, capped at 100%. A client overlooked a £10k grant—£300 penalty sorted with disclosure. File voluntarily early to cap at 30% mitigated; daily compounding is brutal.
Q16: Do innovation grants require state aid notification in 2026?
A16: Post-subsidy control rules, track cumulative aid under £315k de minimis—most small grants fit. I've logged this for a Cardiff inventor across three awards without hassle. Use the SA.63000 form if exceeding; transparency avoids repayment demands.
Q17: How does a grant for export support get treated for overseas sales tax?
A17: As UK income, but if it subsidises exports, watch transfer pricing for multinationals. A Welsh exporter I advised treated it fine domestically, but arm's length proof satisfied HMRC. Zero-rate VAT on exports remains, grant outside scope—clean win.
Q18: Can I use grant funds for salaries, and what's the NI implication?
A18: Yes, for project-specific roles, but it's taxable pay subject to PAYE/NI unless a pure capital grant. A project manager hire via grant for a Liverpool firm triggered full RTI reporting. Budget 13.8% employer NI; offset via R&D if qualifying.
Q19: What if HMRC queries my grant usage during a compliance check?
A19: Provide the grant agreement, spend ledgers, and outcomes report pronto—they're fishing for double-dips. In a recent audit for a Sussex printer, bank statements matched perfectly, closing the case fast. Pre-empt with a compliance folder; saves weekends.
Q20: Are there grace periods for grant repayment if my business hits cashflow issues?
A20: Depends on the funder—Innovate UK offers 30-day notices, but negotiates installments showing hardship evidence. I've extended terms for a struggling Yorkshire maker by submitting projections. Contact the grant body immediately; HMRC follows their lead on tax adjustments.
About the Author:
Adil Akhtar, ACMA, CGMA, serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than three years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants, combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
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