Is the Government too cautious in making R&D work for the taxpayer?

While few would deny that the presence of R&D tax reliefs has been beneficial for the state of UK innovation since their creation, a persistent question of how to ensure they are operating most efficiently must be asked.

While the answer falls to the Government itself, accountants looking to help clients with R&D should consider the ways in which a changing approach to research could impact R&D tax relief claims going forward.

In particular, there are concerns that neither innovators nor taxpayers are currently benefiting from research funding as much as they should, so a change in approach could be on the horizon.

Does the R&D tax relief scheme provide value for taxpayers?

The Public Accounts Committee (PAC) has taken aim at UK Research and Innovation (UKRI) and found that it is not currently operating efficiently in terms of facilitating innovator growth or getting the most return on value for taxpayers.

This is troubling for those who engage with the scheme to bolster research, but could be a sign of relief if they have experienced frustration with accessing funds.

There were two main criticisms levied at UKRI by PAC: that its dispersed research infrastructure is inefficient and leads to challenges for businesses outside of the “Greater South East” and that taxpayers were not being sufficiently prioritised in terms of benefitting from investment.

The former of those concerns is the one that accountants and their clients are most likely to resonate with.

In its report, PAC describes UKRI’s existing research infrastructure estate as “bloated” and that more active prioritisation of decisions that will impact infrastructure should be made.

One clear recommendation is that UKRI should take more decisive action on rising costs and underperforming projects.

On the one hand, this could see businesses making strides in their field face greater scrutiny from UKRI, but the alternative is that those struggling to make the investment pay off could face further hardship.

In terms of helping the taxpayer reap more reward from research, PAC’s suggestion may not be something that innovators want to hear.

It is proposed that the Government be more direct in taking part ownership of Intellectual Property (IP) that was developed using public money, an approach that would aim to generate revenue for the Government based on the commercial success of research.

How will PAC’s suggestions influence R&D tax relief claims?

It is unlikely that every one of PAC’s suggestions will be adopted by the Government and even those that are will likely be phased in over time.

What is clear is that R&D investment is remaining a high priority, even if the way in which this manifests is up for debate.

The implementation of Government ownership of research projects is unlikely to take place in the near future, given that it would take a notable shift in guidance and regulations to manage.

What may happen is that more generous funding could be tied to Government ownership and this may leave R&D tax reliefs as an option for those working on either non-commercial advances or work that they wish to retain full control of.

There is a concern that such fragmentation of R&D funding, or any alterations that would seize ownership away from businesses, will further stratify the research space in the UK.

Recent statistics highlight the increased engagement in R&D tax reliefs by larger companies and the decline in SMEs making claims, something that would likely worsen if IP were tied to funding.

It can be hoped that the enhancement of UKRI infrastructure is given higher priority than the other suggestions, as it should be more straightforward to implement and likely less contentious.

However the Government elects to shape R&D tax reliefs in the future, our expert team of R&D tax consultants will continue to support accountants and the innovative businesses they help.

We will help to compile R&D tax relief claims that fully capture the qualifying expenditure, ensuring that this remains as financially beneficial for the business as possible.

Where possible, we can also assist with other means of research funding and manage the handling of these funds in an R&D tax relief claim, now that they are not necessarily mutually exclusive.

Through any future changes, we will be on hand to let you know how you and your clients may be affected so that you can continue to support innovation with confidence.

Get in touch to continue getting the most value from R&D tax relief claims for your clients.

Adam Bointon

Adam Bointon is a Technical Director specialising in R&D Tax Credits for SMEs in manufacturing and software sectors. With over 15 years’ experience, he works closely with businesses to identify qualifying R&D activities and prepare clear, compliant claims. He combines technical expertise with a strong understanding of economics and finance to support successful outcomes. Adam also contributes to industry webinars and CPD sessions, sharing insights on R&D tax relief and HMRC requirements.