Autumn Budget 2025 has already been labelled a “smorgasbord of misery.”
The headlines are dominated by household pressures: £26bn in tax rises, frozen thresholds pulling millions into higher bands, tighter rules on salary sacrifice, and a cap on cash ISAs.
But once you strip out the political noise and the OBR leak that defined the day, the picture for innovative companies is more measured.
For businesses performing R&D, the headline is stability. The core R&D schemes remain unchanged. For the first time in years, businesses can plan growth strategies against a predictable set of rules rather than moving goalposts. While the shift isn’t towards greater generosity, the move towards greater certainty is a trade-off many will accept.
Crucially, the government has picked its winners. If you are a pre-revenue startup, the landscape is largely unchanged. But if you are approaching traditional growth barriers (250 employees, £30m in assets, or a Series B round) the ceiling has just been lifted.
Below is an assessment of what the Autumn Budget 2025 means for innovative UK companies.
Table of contents
1. R&D Tax Relief
No changes to the core schemes
The most important outcome is what didn’t change. The merged RDEC scheme remains the same. ERIS is unchanged. The PAYE/NIC cap stays as it is. There are no adjustments to subcontracting, EPWs, qualifying expenditure or rates.
After years of reforms, this stability is meaningful. And while the administrative changes do not expand relief, they should provide greater clarity and predictability for innovative companies as they plan future growth and investment.
The Advance Assurance Pilot
Launching in Spring 2026, the Targeted Advance Assurance Service is a way for companies to secure HMRC’s view on “key aspects” of their R&D claim before filing.
The consultation published alongside the Budget makes HMRC’s aims explicit: reduce error and fraud, improve customer experience, and give businesses earlier certainty.
For companies claiming, this could reduce the risk of time-consuming enquiries by removing ambiguity earlier in the process.
It also marks a broader shift. HMRC wants part of the process to happen upstream, enabling it to distinguish compliant claims from higher-risk ones long before payment. The consultation outlines several models, from voluntary early discussions to more formal, potentially mandatory pre-claim clearances for sectors or company types with historically higher non-compliance.
For many companies, this reinforces the value of working with advisors who can support in-year record-keeping, assess R&D costs and technical information accurately, and ensure the claim is robust enough to withstand earlier scrutiny. For well-documented, disciplined claimants, this offers a route to greater predictability. For others, it will inevitably increase scrutiny.
HMRC also confirmed today that further detail on the new approach will be published later this year.
Intra-group credit treatment fixed
From 26 November 2025, payments between group companies for surrendered RDEC or creative industry credits are ignored for Corporation Tax purposes (provided they do not exceed the credit itself).
This removes a long-standing risk of double taxation. For groups with multi-entity structures, it allows incentives to flow to the part of the business actually funding or carrying out the R&D, reducing unnecessary friction.
2. Scale-up policy: EMI and EIS Refocused on mid-growth companies
A central theme of the Budget is the shift to supporting scaling companies. Talent retention and access to capital are the two levers the Chancellor has chosen.
Expanded EMI eligibility
From April 2026:
- Employee limit: increases from 250 to 500
- Gross assets threshold: Increases from £30m to £120m
- Company-wide option limit: increased from £3m to £6m
- Exercise period: extended from 10 to 15 years
This is a significant expansion. Companies that would previously have outgrown EMI, often at the point when talent competition intensifies, can now retain access to the UK’s most effective option scheme. It improves the ability of scaling firms to compete for experienced hires.
EIS and VCT thresholds increased
To address the persistent Series B capital gap, the government has raised investment limits:
- Annual EIS/VCT limit: up to £10m (or £20m for Knowledge Intensive Companies)
- Lifetime limit: up to £24m (or £40m for KICs)
- Gross assets limit updated to £30m–£35m
These changes allow innovative companies to raise larger rounds within tax-advantaged structures, potentially reducing the need to seek later-stage funding overseas.
Important note: Northern Ireland businesses trading in goods or electricity cannot access these higher limits due to subsidy control rules. They should proceed with care.
3. Capital Allowances
The Budget adjusts capital allowances in a way that favours proactive investment.
Writing-down allowances reduced
From April 2026, the main WDA drops from 18% to 14%. For companies with large pools of existing assets, tax relief will now be spread over a longer period.
New 40% First-Year Allowance
To balance this, a 40% First-Year Allowance (FYA) will be introduced for main-rate expenditure from 1 January 2026. This incentivises companies to invest in new plant, machinery, and infrastructure rather than relying on legacy assets.
Overall, this is a productivity-focused adjustment. It supports businesses investing in capacity and modernisation while quietly penalising stagnant capital strategies.
4. Direct Innovation Funding
The Budget marks a clear shift from broad innovation funding towards targeted support for sectors identified in the Industrial Strategy (IS-8). Public money is increasingly being deployed where the government sees strategic advantage.
Growth Catalyst Fund (£130m)
Innovate UK will launch a £130m programme aimed at “frontier companies” that have already secured private investment. External validation is now effectively a prerequisite for public funding.
Sector-specific allocations
Funding includes:
- Automotive: £1.5bn additional investment for DRIVE35 (total £4bn)
- Life sciences: £30m for RNA therapies
- Semiconductors: £10m for a South Wales cluster
- Aerospace: £975m over five years
- Creative industries: £150m Creative Places Fund
The strategy is clear; sectors aligned with national industrial priorities will receive concentrated public support. Companies outside these domains will continue to rely more heavily on R&D tax relief as their primary innovation incentive.
5. Compliance and Infrastructure: E-Invoicing Points to the Future of Tax Administration
A quieter but important measure is the introduction of mandatory electronic invoicing for all VAT-registered B2B and B2G transactions from April 2029.
Why this matters for innovative companies
R&D claims rely on accurate, verifiable expenditure data. E-invoicing moves the system towards structured, machine-readable records. Over time, this will allow HMRC to automate parts of verification by cross-referencing supplier expenditure, payroll data and claim submissions.
For finance teams, it is a clear signal to modernise record-keeping. By 2029, R&D compliance is likely to be more digitised, standardised and less tolerant of incomplete audit trails.
EmpowerRD View
Whilst the Autumn Budget 2025 is going to place a greater burden on households, it has avoided blunt cuts to business incentives. For innovative and scaling companies, the direction is clearer than it has been for some time:
- R&D relief remains stable, enabling more predictable financial planning.
- EMI and EIS reforms materially improve the UK’s ability to retain talent and attract growth capital.
- Targeted funding supports sectors aligned with national growth ambitions.
- Compliance reforms hint at a more data-driven future for R&D claims.
That said, there is still room to go further. Lowering the ERIS threshold, aligning R&D credit rates more closely with international peers, simplifying EMI, making capital allowances more supportive of investment, and delivering a genuinely digital-first Advance Assurance process would have given innovators even greater clarity and confidence to hire, invest, and scale. Initiatives like the £1 million bioengineering sandbox fund are encouraging, but the broader framework needs to work in tandem if the UK is serious about backing the companies building here.
The government’s position is clear: it wants to give businesses more certainty, but only where the innovation is genuine and well-evidenced. The Advance Assurance pilot shows that HMRC recognises some of the administrative challenges companies have been facing, and that clearer guidance and earlier decisions can make a real difference.
But it also raises the bar. If companies want that certainty, they will need claims that are properly documented, compliant, and able to stand up to earlier scrutiny.
If you have any further questions about what was published in the Autumn Budget 2025, get in touch with one of our R&D experts today.
