R&D tax relief plan to boost productivity, innovation and drive economic growth
Ahead of the Chancellor’s Budget, techUK sets out a plan for the Government to restore confidence in the UK’s flagship R&D tax relief scheme, prioritising longer-term policy stability, effective administration from HMRC and better support for SMEs.
The Government has tough choices to make in the upcoming Budget and Spending Review. Better incentivising businesses to invest in R&D is a choice that will yield substantial returns. This is a growth opportunity, where firms that consistently invest in R&D are predicted to be 13% more productive than those that don’t. For every £1 of tax relief granted, up to £2.70 of additional R&D investment is also generated.
Committing to stability of the credit and tackling fraudulent claims were the right ambitions. Under the previous Government, there were five changes in the last parliament alone. Our members consistently call for policy stability and certainty to instil investor confidence.
Below, we outline practical, low-cost actions that the Government can take to ensure the R&D tax credit remains fit for purpose and taxpayers’ funds are used effectively. Recognising the number of recent changes, we balance reforms and set out a longer-term plan to make the credit more competitive and empower an under-delivering HMRC to tackle fraudulent claims in a fair and just way.
Our recommendations have been developed with insight and expertise from our members, including SMEs and larger tech firms, and tax experts. They focus around:
Prioritise improving HMRC’s delivery of R&D tax reliefs.
Make changes to the R&D Tax Credit Scheme to drive further investment into the UK.
Get started on a longer-term five-year plan for the delivery of R&D tax reliefs.
Setting the scene
Since its introduction, the UK's R&D tax credit scheme has been key to driving innovation by reducing companies' corporation tax or providing credit payments based on R&D spending. The scheme is especially vital for smaller firms, helping to reduce risks and improve cash flow.
Of note, in 2021-22, £7.6 billion in R&D tax relief supported £44.1 billion in R&D expenditure. However, reforms under the previous Government, including a merged scheme effective from April 2024, have reduced benefits for many SMEs and added complexity around subcontracted R&D. Additionally, HMRC’s inconsistency, and often failure, in administering the credit effectively, has further hindered the scheme’s effectiveness.
Step one: Improve HMRC’s delivery of R&D tax credits
While the ambition to tackle fraud is the right one and HMRC's initial efforts to address R&D tax credit fraud are commendable, there is a risk that a poorly regulated compliance process may be causing as much, if not more, harm to the UK economy than the fraud that HMRC initially allowed to proliferate.
Currently, HMRC’s services have been falling below expected service levels, resulting in added costs for businesses and the Government. In May 2024, the National Audit Office revealed that new digital services had not reduced service pressures as much as predicted. techUK members outline consistent reporting errors and delays from HMRC.
To combat this, techUK recommend:
Using the ‘R&D tax reliefs: Expert Advisory Panel’ announced in Spring 2024 to inform recommendations around HMRC’s administration, operation and delivery of R&D tax reliefs.
Re-introducing geography specific expert teams within HMRC. This would create sector specific specialists due to the clustered nature of R&D investments.
Commiting to providing the human capital and data to deal with the volume of cases and meet cases where self-assessment comes into question. This should be accompanied with clear guidance and reasoning for challenging and/or rejecting a claim.
Step two: make changes to R&D tax reliefs to drive further investment into the UK
Any immediate changes to the R&D tax reliefs should prioritise (i) changes to HMRC delivery, (ii) anchoring investment in the UK and (iii) supporting SMEs innovation and challenges for risky endeavours such as R&D.
Key to this, is extending the qualifying categories to include capital expenditure, such as plant and machinery, used solely for R&D purposes. The OECD currently ranks the UK’s R&D tax relief scheme for SMEs as the 11th most generous of 44 countries, and the UK’s R&D tax relief scheme for large companies is currently ranked as only the 23rd most generous. Better recognition of capital in UK R&D tax credits would make the UK tax system more internationally competitive and work to anchor investment in the UK.
Practical interventions that the Government can take include:
Introducing a de minimis qualifying R&D expenditure threshold for the R&D tax credits scheme, with the purpose of reducing HMRC caseload and removing wholly non-compliant claims.
Extending the qualifying categories to include capital expenditure, such as plant and machinery, used solely for R&D purposes. This would anchor innovative investment in the UK.
Expanding ERIS (Enhanced Research and Development intensive support) to include profitable SMEs.
Revisiting the merged scheme to improve clarity around subcontracted R&D and to support SMEs innovation, recognising they often face greater challenges accessing funding for risky endeavours such as R&D.
Step three: Get started on a five-year plan for R&D tax reliefs
Our members thrive on stability, enabling them to plan with greater certainty and make longer-term investment decisions. Given the consultation process for a merged scheme has now ended, techUK believe there is an opportunity to boost the UK’s competitiveness, and instill confidence, with a longer-term five-year plan.
We reiterate that supporting investment in R&D across our membership will help to deliver on the Government’s missions – whether reducing waiting times for the NHS, securing the UK’s energy security or securing the highest sustained growth in the G7.
To get started on a longer-term plan, we propose:
Revisiting the policy objectives of the R&D tax relief scheme, with inward investment and UK competitiveness at the heart of this.
Providing policy certainty by setting a new target for R&D spend as a percentage of GDP, with updated research from HMRC on additionality and spillover benefits. This should complement HMT’s plans to review the credit over a five-year period.
The UK is at a critical juncture, and has the opportunity to remain a world leader in technology and innovation. A robust and competitive R&D tax relief scheme is central to achieving this goal, driving business investment in R&D, and supporting the Government’s broader economic ambitions.
techUK look forward to continuing to work with the Government on this topic.
For any questions, or to discuss this further, reach out to the digital economy team:
Neil Ross
Associate Director, Policy, techUK
Neil Ross
Associate Director, Policy, techUK
As Associate Director for Policy Neil leads on techUK's public policy work in the UK. In this role he regularly engages with UK and Devolved Government Ministers, senior civil servants and members of the UK’s Parliaments aiming to make the UK the best place to start, scale and develop a tech business.
Neil joined techUK in 2019 to lead on techUK’s input into the UK-EU Brexit trade deal negotiations and economic policy. Alongside his role leading techUK's public policy work Neil also acts as a spokesperson for techUK often appearing in the media and providing evidence to a range of Parliamentary committees.
In 2023 Neil was listed by the Politico newspaper as one of the '20 people who matter in UK tech' and has regularly been cited as a key industry figure shaping UK tech policy.
Samiah Anderson is the Head of Digital Economy at techUK, overseeing the Digital Economy programme, which promotes how the UK digital economy and innovation can drive sustained economic growth.
With over six years of Government Affairs expertise, Samiah has built a solid reputation as a tech policy specialist, engaging regularly with UK Government Ministers, senior civil servants and UK Parliamentarians.
Before joining techUK, Samiah led several public affairs functions for international tech firms and coalitions at Burson Global (formerly Hill & Knowlton), delivering CEO-level strategic counsel on political, legislative, and regulatory issues in the UK, EU, US, China, India, and Japan. She is adept at mobilising multinational companies and industry associations, focusing on cross-cutting digital regulatory issues such as competition, artificial intelligence, and more.
She holds a BA (Hons) in Politics, Philosophy, and Economics from the University of London, where she founded the New School Economics Society, the Goldsmiths University chapter of Rethinking Economics.
Mia works to ensure that the UK policy and regulatory environment promote investment into the tech sector, recognising the role of digital and emerging technology towards future growth and productivity.
Prior to joining techUK, Mia worked as a Senior Policy Adviser at the Confederation of British Industry (CBI) within the Policy Unit.
Mia holds an MSc in International Development from the University of Manchester and a BA(Hons) in Politics and International Relations from the University of Nottingham.
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Antony Walker is deputy CEO of techUK, which he played a lead role in launching in November 2013.
Antony is a member of the senior leadership team and has overall responsibility for techUK’s policy work. Prior to his appointment in July 2012 Antony was chief executive of the Broadband Stakeholder Group (BSG), the UK’s independent advisory group on broadband policy. Antony was closely involved in the development of broadband policy development in the UK since the BSG was established in 2001 and authored several major reports to government. He also led the development of the UK’s world leading Open Internet Code of Practice that addresses the issue of net neutrality in the UK. Prior to setting up the BSG, Antony spent six years working in Brussels for the American Chamber of Commerce following and writing about telecoms issues and as a consultant working on EU social affairs and environmental issues. Antony is a graduate of Aberdeen University and KU Leuven and is also a Policy Fellow Alumni of the Centre for Science and Policy at Cambridge University.
As Associate Director for Policy Neil leads on techUK's public policy work in the UK. In this role he regularly engages with UK and Devolved Government Ministers, senior civil servants and members of the UK’s Parliaments aiming to make the UK the best place to start, scale and develop a tech business.
Neil joined techUK in 2019 to lead on techUK’s input into the UK-EU Brexit trade deal negotiations and economic policy. Alongside his role leading techUK's public policy work Neil also acts as a spokesperson for techUK often appearing in the media and providing evidence to a range of Parliamentary committees.
In 2023 Neil was listed by the Politico newspaper as one of the '20 people who matter in UK tech' and has regularly been cited as a key industry figure shaping UK tech policy.
As Head of Public Affairs, Alice supports techUK’s strategic engagement with Westminster, Whitehall and beyond. She regularly works to engage with ministers, members of the UK’s parliaments and senior civil servants on techUK’s work advocating for the role of technology in the UK’s economy as well as wider society.
Alice joined techUK in 2022. She has experience working at both a political monitoring company, leading on the tech, media and telecoms portfolio there, and also as an account manager in a Westminster-based public affairs agency. She has a degree from the University of Sheffield in Politics and Philosophy.
Edward leads the Digital Regulation programme at techUK, which includes our work on online safety, fraud, and regulation for growth initiatives.
He has prior experience working for the Department for Digital, Culture, Media and Sport and has previously worked for a number of public affairs consultancies specialising in research and strategy, working with leading clients in the technology and financial services sectors.
Samiah Anderson is the Head of Digital Economy at techUK, overseeing the Digital Economy programme, which promotes how the UK digital economy and innovation can drive sustained economic growth.
With over six years of Government Affairs expertise, Samiah has built a solid reputation as a tech policy specialist, engaging regularly with UK Government Ministers, senior civil servants and UK Parliamentarians.
Before joining techUK, Samiah led several public affairs functions for international tech firms and coalitions at Burson Global (formerly Hill & Knowlton), delivering CEO-level strategic counsel on political, legislative, and regulatory issues in the UK, EU, US, China, India, and Japan. She is adept at mobilising multinational companies and industry associations, focusing on cross-cutting digital regulatory issues such as competition, artificial intelligence, and more.
She holds a BA (Hons) in Politics, Philosophy, and Economics from the University of London, where she founded the New School Economics Society, the Goldsmiths University chapter of Rethinking Economics.
Audre joined techUK in July 2023 as a Policy Manager for Data. Previously, she was a Policy Advisor in the Civil Service, where she worked on the Digital Markets, Competition and Consumers Bill at the Department for Science, Innovation and Technology, and at HM Treasury on designing COVID-19 support schemes and delivering the Financial Services and Markets Bill. Before that, Audre worked at a public relations consultancy, advising public and private sector clients on their communications, public relations, and government affairs strategy.
Prior to this, Audre completed an MSc in Public Policy at the Korea Development Institute and a Bachelor's in International Relations and History from SOAS, University of London. Outside of work, she enjoys spending time outdoors, learning about new cultures through travel and food, and going on adventures.
Mia works to ensure that the UK policy and regulatory environment promote investment into the tech sector, recognising the role of digital and emerging technology towards future growth and productivity.
Prior to joining techUK, Mia worked as a Senior Policy Adviser at the Confederation of British Industry (CBI) within the Policy Unit.
Mia holds an MSc in International Development from the University of Manchester and a BA(Hons) in Politics and International Relations from the University of Nottingham.
Archie Breare joined techUK in September 2022 as the Telecoms Programme intern, and moved into the Policy and Public Affairs team as the Team Assistant in February 2023 and as Public Affairs Manager in September 2023
Before starting at techUK, Archie was a student at the University of Cambridge, completing an undergraduate degree in History and a master's degree in Modern British History.
In his spare time, he likes to read, discuss current affairs, and to try and persuade himself to cycle more.
Policy and Public Affairs - Team Assistant, techUK
Oliver Alderson
Policy and Public Affairs - Team Assistant, techUK
Oliver is the team assistant for the Policy and Public Affairs teams, joining techUK in November of 2023. He assists the teams admistrative support, communication, and event production.
Prior to working at techUK, Oliver studied at Swansea and Bristol universities, attaining a masters in Policy Research. During this time he competed in debating competitions around the country where he discussed and deliberated various policy issues. Between his studies Oliver acted as a student assistant in mental health research for the SMaRteN student network.
