Chancellor Rachel Reeves has framed this year’s Autumn Budget as one of “necessary choices.”
Public finances are tight and tax rises elsewhere are likely, but innovation funding isn’t on the chopping block: DSIT’s £55 billion long-term R&D commitment underlines that research remains central to the UK’s growth strategy.
Much like last year’s Budget, this one is expected to be quiet on the R&D tax credit front again. After years of reform, with the merged R&D scheme, ERIS, and new compliance measures now fully in place, most businesses are starting to get used to the new way of claiming.
However, with error and fraud at an all-time low, this Budget is less about rewriting the rules and more about proving that stability and growth can coexist for innovative companies in the UK.
Advance Assurance legislation expected for 2026
HMRC’s March 2025 consultation proposed major procedural reform: mandatory or voluntary Advance Assurance for R&D claims and a possible minimum-spend threshold. That consultation closed in May, and the Autumn Budget is expected to confirm draft legislation for implementation from April 2026.
What to expect:
- Mandatory assurance for high-risk sectors or claim types
- Voluntary assurance for companies seeking upfront certainty
- A minimum expenditure threshold (potentially £10k–£25k) to filter very small claims
If enacted, this would give compliant claimants pre-approval for up to three accounting periods – cutting enquiry risk and giving CFOs the confidence to plan their cash flow around confirmed relief.
Strengthening innovation incentives
The latest HMRC data show 36,885 claims from SMEs in 2023–24 (-31 %), continuing the post-reform decline, with overall claims dropping by 26%.
But tougher oversight has also cleaned up the market: the error and fraud rate fell to 7.8 %, restoring credibility. Now the challenge is to rekindle participation without lowering standards.
EmpowerRD’s survey of 500 innovators found the average R&D spend is at 12% of total expenditure. With that being said, lowering the ERIS threshold from 30% to 20% would be a sensible way to go, making relief accessible to thousands more legitimate innovators who still invest heavily in research but fall short of today’s bar.
At the same time, the UK risks falling behind competitors: Ireland has raised its R&D credit to 35%, fifteen points higher than the UK’s merged-scheme rate. Another option would be to target uplifts for priority sectors like life sciences, clean energy, and AI. This would help restore global competitiveness and align with Labour’s Industrial Strategy.
Full expensing extended to software, data and IP
One of the most credible growth measures expected is the extension of 100% first-year expensing to cover intangible assets such as software, data, and IP. This would align tax treatment with how modern R&D spend occurs and deliver faster cash-flow relief for digital, AI and life-sciences businesses. For CFOs, it’s practical, growth-friendly and rewards investment rather than property or plant.
Modernising EMI and scale-up incentives
The Enterprise Management Incentive (EMI) scheme remains central to attracting and retaining technical talent but has not kept pace with today’s scale-up economy.
Expected updates include:
- Raising company eligibility from 250 to 500 employees
- Increasing the £30 million gross-asset cap
- Extending option lifecycles from 10 to 15 years
- Introducing an “EMI+” tier for larger scale-ups (up to 1,000 employees / £1 billion assets)
Alongside this, simplifying EIS, SEIS and VCT documentation and timelines could reduce friction for founders and investors, complementing the government’s push to retain more late-stage UK companies.
Digitalisation and VAT e-invoicing
Expect the Budget to advance HMRC’s digital-compliance agenda with a phased rollout of VAT e-invoicing.
This real-time reporting model, mirroring the EU’s VIDA framework, would automate data transfer to HMRC, cut errors and fraud, and support the Treasury’s “strong foundations” message.
For businesses, it signals the next phase of Making Tax Digital.
Green innovation and industrial investment
The government’s £55 billion R&D funding boost through DSIT confirms that public R&D remains a cornerstone of growth.
Allocations to UKRI, ARIA and the AI Security Institute will fuel breakthroughs in clean energy, quantum, and advanced tech – crowding in private investment estimated at £2 for every £1 of public spend.
With Labour’s Green Prosperity Plan anchoring its Industrial Strategy, the Budget may extend capital allowances or targeted grants for renewable energy, low-carbon manufacturing and clean-tech R&D – turning research into regional growth.
Pension and payroll reform under review
Although Reeves has reiterated her pledge not to raise the main VAT, Income Tax, or National Insurance rates, analysts expect changes to the mechanics of pension and payroll reliefs.
Removing employer NIC exemptions on salary-sacrifice schemes could raise up to £17 billion, while shifting pension tax relief to a flat 30 % rate would simplify administration but reduce benefits for higher earners.
For innovators managing tight margins, such adjustments could slightly raise employment costs – reinforcing the value of using R&D relief to offset future cash pressures.
Other potential business measures
- A stamp-duty exemption for new share purchases may be introduced to encourage UK listings.
- Further reform of EIS/VCT eligibility and timelines could follow recommendations from the Startup Coalition.
- Business-rates adjustments for lab and innovation space remain a long-term possibility rather than a 2025 measures.
EmpowerRD’s priorities for UK innovators
- Lower the ERIS threshold to 20 % to reflect real-world R&D spend.
- Increase R&D credit rates toward international parity.
- Implement Advance Assurance with clear digital standards to reduce enquiry risk.
- Make full expensing permanent for tangible and intangible assets.
- Modernise EMI and simplify investment schemes to support talent and capital formation.
Why this matters
HMRC’s tighter compliance has restored integrity to the R&D tax scheme but has also dented confidence: claim volumes are down 26% overall, and one in five claimants has faced an enquiry. Yet venture funding tells a different story – $9 billion raised in Q3 2025, the strongest since 2022.
The Autumn Budget is the moment to connect those two trends: restore confidence and reward ambition.
With broader tax rises looming elsewhere, R&D relief and innovation funding are the levers that can drive growth without sacrificing fiscal discipline.
EmpowerRD continues to support the UK’s innovators with technology and expertise that make every claim faster, clearer and fully compliant – ensuring the country’s brightest ideas get the backing they deserve.
