Chancellor Rachel Reeves has just announced the 2025 Budget.
Alongside headline-grabbing interventions like the abolition of the two-child benefit cap and the introduction of a new mansion tax, this major fiscal event, which will raise taxes by £26 billion, contained a range of policies that will impact UK innovators.
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R&D Tax Relief Updates
Targeted research and development advance assurance
The government will trial a new advance assurance service from spring next year that will give small and medium-sized businesses (SMEs) clarity on “key aspects” of their R&D Tax Relief claims before they submit them to HMRC.
The current advance assurance service lets companies that have not applied for R&D Tax Relief before get confirmation on whether they qualify for the scheme before submitting their claim. This helps first-time claimants that are filing within their first three accounting periods to avoid compliance issues, such as time-consuming enquiries, and wasting precious time preparing ineligible filings.
However, take-up of advance assurance has dwindled, prompting the government to launch a consultation on reforming advance assurance to improve eligible companies’ access to R&D Tax Relief and address administrative issues that have arisen in recent years, such as the rejection of qualifying claims.
Any SME that is planning to claim R&D Tax Relief can apply to take part in the pilot. Companies will be able to seek assurance on one of the following four issues:
- Whether their project satisfies the definition of qualifying R&D
- Whether their overseas expenditure qualifies for relief
- Which party can claim relief in cases of contracted-out development work
- Whether they qualify for an exemption from the PAYE cap
This existing advance assurance scheme will remain in operation during the pilot.
Administrative Measures for the R&D Expenditure Credit
The government will introduce legislation in the 25-26 Finance Bill setting out the treatment of payments made between companies within a group in return for surrendered Research and Development Expenditure Credit (RDEC), often referred to as the merged scheme. This is not to be confused with the previous RDEC scheme.
This legislation will affect payments made on or after 26 November 2025. We will have to wait until the Finance Bill is published to understand how this will impact businesses.
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Changes to Investment Incentives
The government will increase the Venture Capital Trust (VCT) and the Enterprise Investment Scheme (EIS) limits over a 12-month period from £5 million to £10 million, and the lifetime investment limit from £12 million to £24 million.
The government has also doubled the limits for Knowledge Intensive Companies (KICs) from £10 million in a 12-month period to £20 million and from £20 million to £40 million over the course of a company’s lifetime.
However, this is balanced by a decrease in the upfront VCT Income Tax relief from 30% to 20%. This change will come into force at the end of the tax year.
The eligibility for the Enterprise Management Incentives scheme (EMI) has also been widened to allow scaleups to offer shares that benefit from tax advantages to employees.
£2 Billion on a Modern Public Compute Ecosystem
The government will invest up to £2 billion by 2030 to build a “modern public compute ecosystem”. This will ensure that startups and other members of the UK’s innovation ecosystem have access to cutting-edge compute resources.
This investment includes:
- Over £1 billion to massively expand the AI Research Resource (AIRR) programme
- Up to £750 million for a national supercomputer service based at the Edinburgh Parallel Computing Centre (EPCC)
- Up to £100 million to purchase compute
A New Round of the Women in Innovation Awards
UK Research and Innovation (UKRI), the UK’s national funding agency for science and research, will launch a new £4.5 million round of the Women in Innovation Awards, an initiative designed to champion women entrepreneurship and help women apply for more funding opportunities.
£4 Million for Enterprise Fellowships
UKRI will also invest £4 million per year in Enterprise Fellowships, attracting 100 top researchers to British businesses and up to £25 million in entrepreneurship-focused doctoral training schemes.
Relief for Companies Listing in the UK
Companies that list on a regulated UK stock market will have relief from the 0.5% Stamp Duty Reserve Tax for three years.
The Stamp Duty Reserve Tax applies to electronic transactions in shares in a UK company and foreign companies with a UK share register.
Reaffirming Commitment to R&D Spending
The budget also reaffirmed the government’s commitment to increasing investment in research and development, highlighting the benefit to the UK economy: every £1 of public money invested in R&D returns £8 in net economic benefits.
Investment in IS-8 Sectors
The government will increase annual R&D spending to £22.6 billion by 2029-30 with UKRI allocating £9 billion to IS-8 sectors over four years, including £4 billion to UK companies.
IS-8 refers to eight high-growth industries the government is planning to support as part of its Modern Industrial Strategy, designed to drive economic growth.
Growth Catalyst Programme
As part of this plan, Innovate UK will launch a new Growth Catalyst programme, offering up to £130 million worth of grants and support to cutting-edge companies that have already attracted private investment.
R&D Missions Accelerator
The UKRI’s £500 million R&D Missions Accelerator will launch a series of challenges to drive “economic benefit from the UK’s cultural assets” and reduce construction costs for public infrastructure by 10%.
Maximise Your Government Funding Support
In addition to these measures, there is a host of government funding available to UK innovators, including tax reliefs, grants and loans with favourable terms.
GrantTree’s consultants can help you explore and secure the funding you are eligible for. To understand what funding you qualify for, just get in touch. My colleagues and I would be happy to help.
