Budget 2025

In a Budget that raised both taxes and spending (and was published 45 minutes before the Chancellor stood up in the Commons ) there will be more public funding in the system for innovation, more incentives for scaling companies, but also more scrutiny and structure around R&D tax claims.

Big picture: more money flowing into R&D

Public R&D funding is increasing significantly in the coming years. Annual government investment will rise to £22.6 billion by 2029-30.

UKRI will direct £9 billion of that into key growth sectors, including £4.5 billion for innovative UK companies.

This sits alongside:

• A new £130 million Growth Catalyst programme for high-potential businesses.
• A £500 million R&D Missions Accelerator programme aimed at solving practical national problems.
• Investment in supercomputing and AI infrastructure, including up to £2 billion for computing capability.

We have clear political commitment to R&D and innovation. We might also have an evolving HMRC expectation that claims will align more clearly with recognised Government innovation priorities.

R&D tax relief: the one change you shouldn’t miss

The key tax development is the introduction of a targeted advance assurance service for SMEs, launching in spring 2026.
HMRC will let smaller companies get clarity on eligibility before they submit a claim. On paper, this reduces disputes and uncertainty.

In practice, it also formalises the expectation of transparency up front. For accountants, advisory conversations are likely to shift from “let’s claim and see what happens” to “let’s agree the boundary first”.

There’s also a subtle administrative update: the corporation tax treatment of intra-group payments related to RDEC and creative sector expenditure credits is being clarified. This applies from 26 November 2025.

It won’t affect everyone, but for businesses using surrenderable credits, it’s worth noting.

Wider innovation incentives to keep an eye on

A few changes outside the R&D scheme will indirectly affect innovative scale-ups:

• Eligibility thresholds are increasing for Enterprise Management Incentives (EMI) and investment schemes such as EIS and VCT. That gives scaling tech and deep-science businesses more flexibility to raise capital and hold onto talent as they grow.

• AI Growth Zones and regionally deployed funding will continue clustering support around geography, skills, and infrastructure.

For companies struggling to raise capital because they’ve “outgrown” existing schemes, the change matters.

What this means day-to-day

We’re all well aware of HMRC’s increasing scrutiny of claims. This Budget continues that trajectory, but adds structure and predictability.

The practical implications are:

• Expect more formal pre-approval processes
• Expect enquiries to become less about documentation gaps and more about whether activity meets HMRC’s tightened interpretation of “advancing science or technology”
• Expect more alignment between grants and tax relief claims

For businesses who treat R&D relief as an annual tax optimisation exercise rather than a strategic innovation tool, now’s the time to review that approach.

The bottom line

There’s more support for innovation than ever, but the government – of course – wants value for money and measurable outcomes.

We await news of any outcomes from the R&D tax relief advance clearances consultation (voluntary and mandatory clearances, minimum expenditures thresholds) and perhaps look forward to a more stable and predictable landscape for R&D tax relief – at least in the short term.