1. News
  2. Accessing innovation incentives – ten steps to ensuring continued success

Accessing innovation incentives – ten steps to ensuring continued success

Tom Jones
Director
Read time:

The start of a new year provides the perfect opportunity to revisit your business goals and plan for the months ahead. For innovative businesses, that will likely include accessing one or more innovation incentive in 2025.

2024 saw the landscape evolve for innovation incentives, with the introduction of new rates, rules and procedures for R&D tax relief, as well as an increased compliance environment. 2025 – the first full year of claiming under the new scheme – will bring further change, as well as opportunity, not least in the shape of significant new funding commitments for major grant schemes and sectors such as aerospace and automotive.
Ensuring that you’re up to date with the latest changes is key to securing funding for your business. With that in mind, we’ve prepared a handy ten-step guide to ensure that you’re protecting yourself from risk, while also exploring the full range of available incentives. So, make certain that you review those 2025 business goals, start the year with a clear vision and are armed with the key information to turn that vision into reality.

1. Scan the horizon for new developments

For R&D, that might mean checking whether you qualify for an enhanced rate of relief or diarising key dates for information filing. For grants, it could be keeping up to speed with announcements on new funding windows for major schemes such as the Industrial Energy Transformation Fund and Life Sciences Innovative Manufacturing Fund, or putting together applications for sector-specific schemes.

After a year in which grant funding slowed while the general election took place and a new government assumed office, we expect to see the opening of new opportunities in 2025. Whichever sector you’re involved with, scour the market for information and note the eligibility criteria and applicable deadlines – engaging relevant stakeholders on the way.

2. Explore the full range of incentives

2025 marks 25 years since R&D tax relief was first established in the UK and, in the years since, it has become the cornerstone of the innovation toolkit. Given its longevity, you may have established systems and processes in place to capture R&D in real time and to submit your claim in the relevant window.

But how familiar are you and your finance team with the other incentives in the innovation toolkit? Why not check the patents held by your company and assess your eligibility for Patent Box relief? This valuable relief reduces corporation tax on qualifying profits related to patented IP from 25% to 10%. Yet we find that it is often underutilised owing to a lack of awareness and understanding.

Similarly, if you’re investing in new plant or machinery, could you meet the criteria for capital allowances? Or, if your business is involved in a particular sector or type of innovation, could you be eligible for a grant?

Take a holistic approach – ideally in collaboration with an experienced adviser such as ForrestBrown, with its multi-disciplinary team of experts – who can offer advice across the full toolkit.

3. Assess risk and ensure that your claims processes are robust

Much has been written about increased compliance activity by HMRC in R&D claims, which has seen enquiry levels rise from around 1% to 17% in 2023/24. Despite a decrease in fraudulent activity in 2023/24, we anticipate similar levels of compliance activity in 2025.

Given the random nature of much of the enquiry process, there will always be the possibility of an enquiry arising from an R&D claim. That’s why it’s vital to ensure that risk is properly assessed and that claims are robust.

Reputable advisers such as ForrestBrown employ a multi-disciplinary team of experts that includes lawyers, technical specialists and an ex-HMRC adviser to review claims against eligibility criteria and ensure that any claim submitted properly meets the requirements set out in the Department for Science, Innovation and Technology guidelines. In today’s increased compliance environment, it will be essential to deploy this approach in 2025 and beyond.

4. Adopt a proactive approach to R&D claims management

First time R&D tax relief claimants will typically have claimed retrospectively. If you’re a business that has or is likely to make year-on-year tax relief claims, then adopting a proactive approach to capturing R&D – where R&D is captured in real time – should be considered.

This may require an up-front investment of time to embed systems and processes to enable you to capture R&D activity as it is identified, but this will save valuable time and resource in the long-term.

Be alert to this and seek advice on the efficiencies that could be made in your business.

5. Procedural requirements: don’t miss relevant milestones

The merging of the two R&D schemes brought with it a raft of changes, not least procedural hurdles that must now be cleared in order for you to submit an R&D claim.

Two significant changes that have been catching businesses out are the introduction of the Additional Information Form and claim notification. The AIF came into force in August 2023 and requires all businesses submitting an R&D tax relief claim to complete a prescribed form in advance. Without it, HMRC will reject the claim.

Claim notification took effect in 2024 and is the change that has caused the greatest ripples. If you are a first-time claimant or have not claimed in the last three years, you are now required to let HMRC know by a certain date that you will be making a claim for R&D tax relief. If you miss the deadline, you’ll lose your ability to claim for that tax year.

On a practical level, we’ve seen that the introduction of the AIF has meant businesses typically need to submit more case summaries with an R&D claim than they would have done previously. This has resulted in a greater investment of time – particularly for the competent professional capturing the R&D. For claim notification, we’ve seen previous claimants that have submitted amended returns who do not meet the criteria and need to notify. If you fall into this category, take extra care not to get caught out.

Both changes necessitate a more structured approach to R&D claims and have significant consequences if you fail to meet the requirements. A reputable adviser can help manage your claims and ensure that you never miss a deadline.

6. Stay abreast of Tribunal decisions and guidance flowing from them

The Tax Tribunal delivered a flurry of R&D decisions in 2024, dealing with issues ranging from the role of the competent professional in R&D claims to subcontracted R&D and subsidised expenditure. The two most recent – Stage One Creative Services and Collins Construction – delivered wins for the taxpayer, which HMRC has confirmed it will not seek to appeal.

However, its decision not to appeal is not the end of the story. The judgments impact its existing guidance on subcontracted R&D and subsidised expenditure in R&D claims, which it is reviewing. It has also confirmed that it aims to “publish further guidance on this in 2025.”

Although the guidance will only affect how the law to 1 April 2024 is interpreted (the merged scheme has brought in new rules from that date forward), it will be interesting to see what the guidance says and whether it will resolve any open enquiries and appeals.

Ensure that you stay informed on HMRC’s update – particularly if you have a current claim or enquiry with a similar fact pattern to those set out in SOCS or Collins Construction.

7. R&D intensity threshold: do you qualify for an enhanced rate?

Loss-making R&D intensive SMEs can benefit from enhanced R&D intensive support (ERIS) – designed to reward SMEs for investing in innovation.

To be considered “R&D intensive” for ERIS, a company must meet the intensity threshold. For expenditure incurred on or after 1 April 2023, this threshold was set at 40%, before being lowered to 30% for accounting periods beginning on or after 1 April 2024.

We’ve seen companies benefit from this enhanced rate, which carries on under the merged scheme. Check to see which rate of support you might be eligible for before making your claim – it could make a significant difference to the benefit you’re entitled to.

ForrestBrown can advise businesses on the correct rate of support for them, as well as ensuring that all qualifying expenditure is captured.

8. Location strategy: seek advice from consultants to support your move

2025 might be the year when you start to think about your next move – either to support a consolidation, a relocation or an expansion. Whatever the reason, investing in a new location is a substantial commitment for any business, which location strategists can support.

From defining your project goals and conducting site visits, to compiling a shortlist and selecting the optimal location – a location strategy expert can help you make the right investment decisions based on a range of criteria, including the availability of incentives, workforce, and infrastructure.

So, whether you’re a Head of Finance, Chief Financial Officer, or a Global Head of Tax or Finance, seeking the advice of an experienced consultant can provide a bespoke approach to meet your needs.

To find out more about what a location strategy entails and its value to businesses read our article.

Considering your next move?

Our location strategy experts can make recommendations on your next location based on a range of factors, including the availability of incentives, workforce and infrastructure. Contact us today to find out how we can support you.

9. Disclosure: review past claim periods

The launch of HMRC’s dedicated new R&D voluntary disclosure service has shone a light on businesses’ ability to report a discrepancy in past claims should they identify one.

If you employed a reputable agent to prepare your claim, then rest assured, anomalies are unlikely. However, if for whatever reason you’re concerned that you’ve made an error in a past claim and are out of time to amend on your Company Tax Return, then HMRC’s disclosure service could be an option.

Although the service is freely available online, until you have spoken to a reputable agent, you should not make a disclosure – since you may not have anything to disclose. A reputable agent can review your past claim and advise on the best course of action.

10. Readiness for sale: due diligence on past claims

Finally, if you’re considering selling your business in 2025, then you’ll need to do the preparatory work to ready it for sale. This will include due diligence on past R&D claims to ensure that that there are no discrepancies or open enquiries. If there are ongoing enquiries by HMRC, a reputable adviser will be able to review them and handle the correspondence on your behalf. This will alleviate workload and stress, enabling you to focus on other elements of the business sale.

Need advice on innovation funding?

ForrestBrown’s multi-disciplinary team of experts can provide support across the full innovation toolkit. If you need guidance on any of the incentives covered here, do get in touch.