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The future of R&D: The leading sectors of R&D tax

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Author: Tom Mason

Following a period of upheaval for R&D tax relief in 2023/24, the scheme itself looks set for a period of stability going forward – but the same cannot be said of the sectors it supports.

R&D tax relief is granted for the most innovative, cutting-edge work, so the sectors dominating successful claims are constantly shifting alongside the priorities of business owners and the Government.

When faced with these changes, we know that accountants can be put on the back foot, which can have a knock-on effect on the relationship between a firm and its clients.

As the R&D tax relief experts, we’re here to help with our predictions for the R&D tax landscape in the coming years – based on long-term trends, proposed policy and market changes.

  1. Sustainable energy

As one of the primary areas of investment and targeted growth for the new Government, the sustainable energy sector is likely to be a leader in the R&D tax space in the coming years.

In particular, we’re likely to see an increase in claims for projects dedicated to:

  • Renewable energy
  • Carbon-reduction technologies
  • Clean air and water efforts
  • Waste disposal

These are the areas most urgently targeted for expansion by both the Government and environmental groups, meaning they are likely to receive a significant amount of attention and funding – not least from the Government’s own Green Prosperity Plan and Net Zero 2030 targets.

  1. Food technology

The food we eat has undergone marked changes in recent decades, with processing and importing from overseas now the norm.

With sustainability concerns compounding a rising global population, a changing climate and depleting stores of food like fish, food technology and R&D is likely to become a major priority in the UK and beyond.

This is a sector where confusion could flourish, however, as many food innovations focus on using an existing technology in a new way rather than developing something new in itself – which does not currently qualify under the scheme.

  1. Farming and agriculture

Related to food technology, farming and agricultural industries are primed to undergo transformation in the coming years – with sustainability and adaptability at the forefront to address ongoing concerns such as:

  • Fertiliser and toxicity
  • Carbon emissions of farming machinery
  • Soil erosion and poor land use from commercial farming
  • The need for fallow land
  • The limitations of certain crops to grow in the UK

Led by developments in science and technology, agricultural evolution is likely to lead to a rise in the number of R&D tax claims submitted from this sector.

  1. Material sciences

As fast fashion receives greater scrutiny and brands seek to become more sustainable, material development is a candidate for a leading R&D sector – therefore boosting its overall R&D tax claims.

The same is true for materials for manufacturing and engineering, as tougher, more sustainable materials are needed to produce long-lasting buildings, vehicles and other essential infrastructure.

Although R&D tax relief will continue to be available for all sectors, we anticipate a rise in the number of businesses in these industries coming forward and making claims on tax relief based on the innovative work they’re doing.

For sector-specific advice on R&D tax relief and building your practice to support innovative R&D work, please contact our specialist consultancy team today.