The 2025 Budget makes it clear that research and development remains central to the United Kingdom’s growth strategy. There are no dramatic headline changes to R&D tax relief rates. However, there are important shifts in how reliefs are administered, how support is targeted, and how public funding is directed through UKRI and Innovate UK.
For innovative companies this Budget is more about sharpening the rules and widening the funding pipeline than about rewriting the system. It is a good moment to pause, take stock, and make sure your approach to R&D claims and grants is fit for the next few years.
CHANGES TO R&D TAX RELIEFS
Targeted advance assurance for SME R&D claims
The most visible R&D tax announcement is a new targeted advance assurance service for small and medium sized enterprises. From spring 2026 the government will pilot a scheme that allows some SMEs to seek clarity from HMRC in advance on key aspects of their R&D tax relief claims.
This is not a return to the very broad advance assurance of earlier years. It is more selective and is likely to focus on cases where early engagement will make a real difference. In practical terms it should help SMEs that are genuinely carrying out qualifying R&D but are nervous about enquiry risk, and businesses that are willing to invest in better documentation, clearer project descriptions and more robust internal processes.
For those companies the pilot may offer a degree of comfort that a well prepared claim, supported by proper evidence, has already been through an initial sense check. For those with weaker records it is an early warning that HMRC expects higher standards in future. Now is the time to review how you identify projects, document uncertainties and track qualifying costs.
There are still important unknowns. The Budget does not say whether participation will be mandatory or voluntary, or exactly which companies will be able to access the service. These issues were raised in the consultation but the Budget document gives no detail. The industry is expecting further clarification from the R&D Forum in due course, and it is hard to see anything meaningful launching in April 2026 if the design is not agreed soon. I will return to this topic in a later blog once more information is available.
Intra group treatment of RDEC and other expenditure credits
The Budget also picks up an important technical point for groups that claim the Research and Development Expenditure Credit or the newer expenditure credits for the creative sectors. Finance Bill 2025 to 2026 will set out Corporation Tax rules for intra group payments made when one company surrenders its credit to another in return for a payment. The change will apply to payments made on or after 26 November 2025.
Groups often want the economic benefit of RDEC or similar credits to sit either with the company that carried out the R&D or with a central treasury entity. That creates internal payment flows that must be reflected correctly in the tax computation.
In practice this is a niche area. Only a minority of claimants use RDEC in a way that involves group relief decisions. Historically it has been possible for the claiming company to go through the RDEC steps and obtain a payable credit if it does not have sufficient Corporation Tax liability to offset. The economic benefit can therefore be kept in that company. It will be interesting to see whether the new rules move this towards a more mandatory group relief model, currently an option, where RDEC must be set against group tax liabilities. For now it remains a relatively narrow point. Many SMEs that claim under RDEC are not in groups at all and many larger groups are profitable at the level of the claiming company, so the credit is simply set against that company’s own tax.
Changes to grant funding and public R&D investment
Alongside tax measures, the Budget confirms a substantial increase in public research and development spending. The government intends to raise annual government R&D investment to £22.6 billion by 2029 to 2030 and places UKRI and Innovate UK at the centre of this effort.
UKRI will channel funding towards eight priority growth sectors, with a significant share of support earmarked for innovative UK companies rather than only for academic research. Innovate UK will launch a new Growth Catalyst programme, providing grants and tailored support for frontier companies that have already begun to attract investment and are ready to scale.
There are also specific initiatives such as a £500 million R&D Missions Accelerator to support targeted challenges, and ongoing support for programmes that develop research talent and entrepreneurship. Core university research and knowledge exchange funding is protected in real terms, which matters for companies that rely on academic partnerships.
The overall direction is clear. Grant funding will increasingly favour projects that sit within identified priority sectors, that can demonstrate clear economic impact, and that can attract private capital alongside public support. Companies that wish to access this funding will need to present themselves not only as technically strong, but as credible partners in delivering national growth objectives.
Other references to research and development
Research and development appears throughout the Budget as a tool to support productivity, skills and regional growth.
There is increasing attention on how research itself is funded and managed. The government plans to expand its metascience activity, including experiments in faster and more efficient peer review processes. The aim is to reduce the time and uncertainty associated with applying for funding, which should help both researchers and the innovative companies that work with them.
There is also a significant commitment to the use of artificial intelligence in science, through a dedicated AI for Science Strategy with ring fenced investment. For businesses operating in advanced computing, data intensive research or AI enabled products, this is likely to create new opportunities for partnerships and funding over the medium term.
The Budget also links R&D to wider policy levers such as public procurement and equity incentives. Departments will appoint innovation leads for procurement and there will be greater use of advance market commitments, where the state promises to buy a new technology once it reaches a defined standard. At the same time, changes to equity schemes and investment reliefs are intended to help investors continue to support companies as they move from start up phase into larger scale growth.
None of these measures directly changes how an R&D tax computation is made. However, they do shape the environment in which innovative companies operate, the availability of complementary funding, and the expectations placed on businesses that receive public support.
What R&D active companies should do now
If your company undertakes research and development, this Budget is an invitation to step back and review your overall approach.
You should consider how well your current R&D claims would stand up to the type of early scrutiny implied by the advance assurance pilot, and whether your project narratives clearly address technological advance and uncertainty in the way HMRC expects.
It is also worth examining the emerging grant programmes from UKRI and Innovate UK. The interaction between grants and tax relief has simplified in recent years, particularly under the merged scheme, and there is scope to increase the overall level of support for innovation if both are managed together.
If you would like to talk through what the 2025 Budget means for your R&D tax relief claims, I would be very happy to discuss your position in detail. You can contact us through our website contact page.
Christopher Toms MA MAAT
Compliance Director
RandDTax