Possible change in Research and Development tax credit in the upcoming Autumn Budget?
UK R&D Tax Credits: Navigating Changes and Compliance
In the realm of business innovation, the UK's Research and Development (R&D) tax credit scheme has been a significant support for various sectors, including information and communications, manufacturing, professional services, and construction [1]. However, treading carefully is essential when claiming these credits, as seeking professional advice from a trusted accountant or tax credits specialist is advisable before proceeding [2].
Recent changes to the scheme have been substantial, with the introduction of a new Merged Scheme in 2025, affecting which company types qualify and how claims are processed [1]. As of April 2023, all R&D claims must be submitted digitally, and claimants are now required to disclose the names of any advisors involved in preparing claims [3]. This move aims to simplify the R&D tax credit system and reduce error and fraud.
The annual cost of R&D tax credits has reached around £7.5 billion [1]. Yet, concerns about claim quality and fraud remain significant. HMRC's efforts to combat fraud include the Mandatory Random Enquiry Programme (MREP), which reviews samples of claims to identify risks and improve processes [3]. However, these measures have increased the compliance burden on smaller companies.
Businesses must provide clear evidence that their projects advance scientific or technological knowledge, address genuine uncertainties, and maintain detailed records to support their claims [2][3]. Poorly prepared or fraudulent claims not only risk rejection but have prompted HMRC to increase scrutiny, particularly regarding advisors submitting multiple high-risk claims [3].
Despite these challenges, the scheme remains a valuable resource for businesses investing in innovation. If a business is not currently profitable, it can still be eligible for support under the R&D tax credit scheme [5]. Last year, over 55,000 small businesses received R&D tax credits [6]. Under the new merged R&D tax credit scheme, businesses can claim back up to 27% of their innovation costs [7]. Furthermore, businesses investing in innovation can offset some of the cost against their corporation tax [8].
As the government continues to focus on balancing stricter compliance to reduce fraud with simplifying processes for startups and small claimants, the chancellor, Rachel Reeves, is considering targeting R&D tax credits in her first Budget [4]. With the growing importance of innovation in the UK economy, it is worth assessing your firm's eligibility for R&D tax credits if it is pursuing innovation of any kind [9].
[1] HM Revenue & Customs [2] gov.uk [3] The Guardian [4] The Telegraph [5] gov.uk [6] The Financial Times [7] gov.uk [8] gov.uk [9] gov.uk
Investing in business innovation may provide opportunities for substantial financial gains through the UK's R&D tax credit scheme, particularly given the potential for a 27% reimbursement under the new Merged Scheme. However, it is crucial to adhere closely to the compliance requirements for these claims, as the failure to provide clear evidence and detailed records may lead to rejection and increased scrutiny, potentially affecting the advisors involved.
