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The report explores the UK's R&D scheme in relation to comparable schemes offered across other OECD countries and examines the effects of the UK's recent reforms to its R&D scheme. The focus is on the effects of the merged Research and Development Expenditure Credit (RDEC) and Small and Medium-sized Enterprises (SME) schemes, fully implemented in 2024. While these changes aim to reduce fraud and error and simplify the system, in reality, they have significantly reduced the R&D tax benefits available to SMEs. Given that SMEs account for the majority of R&D claims in the UK, this shift poses a substantial risk to the UK's innovation-driven growth. The UK has historically offered one of the most favourable R&D tax relief schemes, particularly for SMEs. However, introducing a merged scheme has raised concerns about its competitiveness. The report examines the impact of recent changes to the UK's R&D tax policies and their potential implications for the country's global competitiveness. While addressing fraud and error, the merged scheme has reduced overall tax relief for SMEs, the largest claimants by volume of R&D tax credits. Compared to Germany and Sweden, the UK now lags in GERD and BERD as a % of GDP, and this decline in SME support could risk further undermining the UK's attractiveness to investment in R&D.
Strengthening Compliance: To mitigate fraud and error while preserving the benefits of an R&D scheme, the government could adopt new or alternative compliance measures rather than cut tax relief. This approach would maintain the scheme's attractiveness for SMEs and ensure that genuine R&D activities are encouraged.
Increase Support for R&D-Intensive SMEs: To maintain the UK’s competitive edge in innovation, the government could revisit the tax relief system and introduce targeted incentives for R&D-intensive SMEs.
Align R&D Incentives with Industrial Strategy: To maintain the openness of the R&D tax scheme, the government could stimulate innovation in both traditional sectors and high-growth areas like AI, biotech, and cleantech. Expanding incentives for research and commercialisation can stimulate private-sector investment, foster job creation, and contribute to long-term economic growth.
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The government has announced that the R&D Claim Notification Form (CNF) requirement will be removed for claims made from 1 April 2027, subject to legislation. Find out what is changing, when the new rules take effect and what companies need to do in the meantime.
Chancellor John Healey’s 2026 Budget introduced several significant measures for UK businesses, including changes to R&D tax relief, energy reliefs and capital allowances. Key announcements include the removal of the R&D Claim Notification Form, plans to simplify the Additional Information Form, further support for energy-intensive businesses and changes to the Capital Allowances regime rates. We summarise the key developments and what they could mean for businesses.
In this article, Jitesh Sodha, an advisor on our Innovation Advisory Council, draws on nearly 30 years of experience as a CFO to explore how finance leaders can create long-term value by shaping strategy, supporting better decision-making and focusing on people, cash and technology.