Research and Development tax relief schemes must remain attractive to businesses to stimulate the economy
Research and Development (R&D) tax relief schemes must remain attractive to businesses to stimulate the economy, say leading audit, tax and business advisory firm, Blick Rothenberg.
Ele Theochari, a partner at the firm, said: “If the government is looking to stimulate the economy, whether that is from home-grown talent or through the attraction of inbound international businesses looking to relocate, the R&D tax relief ecosystem must continue to support and incentivise startups.”
She added: “Concerningly the 2023/2024 yearly R&D tax credit statistics showed a decrease across key areas: total R&D tax relief claimed was down 2%, total qualifying expenditure identified was down 1% and the total number of R&D tax relief claims submitted was down 26%.”
Ele said: “The largest decrease in claimants came from small and medium-sized enterprises (SMEs) which decreased by 31%. While this is not particularly surprising taking into account the perceived targeting of SMEs by compliance teams at HMRC trying to root out fraudulent R&D claims, many genuine SME claimants have been put off claiming all together. There was a drop in claim values below £15k, with the SME scheme seeing the largest reduction in both volume and value of claims.”
She added: “Businesses heavily engaged in R&D are very valuable to the UK economy. In 2025, startups raised $23.7bn, making it the third year on record with $23bn plus in venture capital raised. The UK tech ecosystem is currently worth $1.3tn with half of that value belonging to private companies.”
Ele said: “The UK has produced around 200 unicorns, which are private companies with a valuation of over £759m ($1bn). The UK is the leader in Europe by the number of unicorns and $1bn plus business sales. Fifteen UK unicorns and $1bn plus exits have reached decacorn status, where a company has a valuation of over £7.43bn ($10bn). ARM became the first UK centicorn with a value of over £74.32bn ($100bn).”
She added: “The UK is still both producing and attracting innovative businesses that will be wealth, job, and growth creators, however the sharp downturn in these businesses claiming R&D tax relief and seeking out other forms of funding is cause for concern.”
Ele said: “To tackle this, the government should rethink the overseas rules: under the unified schemes, overseas contractor costs are broadly disallowed except for narrow circumstances including geographical and regulatory reasons. This does not align with a globalised and mobilised economy that encourages utilising talent from around the globe. A potential alternative is to cap the amount of overseas spend allowed, or broaden the circumstances that allow inclusion.”
She added: “Profitable businesses should also be allowed to benefit from the more generous Enhanced R&D Intensive Support (ERIS) scheme rather than exclusively loss-making companies. Attitudes towards claimants with smaller expenditure values should be rethought, as less spend does not automatically lead to lower levels of qualifying research and development, particularly if the owners are bootstrapping the company.”