Research and development expenditure rose 7 per cent in 2024-25, while tax relief claims reached £8.2bn, offering an early indication of how companies are adapting to the government’s overhauled incentives system.
UK businesses increased their investment in research and development to an estimated £51bn in 2024-25, underlining the resilience of corporate innovation spending despite economic uncertainty and a tightening regulatory environment around tax relief claims.
The latest HM Revenue & Customs statistics, published in September, show qualifying research and development expenditure rising 7 per cent from the previous year. The total value of tax relief claimed also increased, reaching £8.2bn, compared with £7.8bn a year earlier.
The figures suggest companies continue to regard innovation as a strategic priority, even as the government seeks to tighten oversight of the system and reduce errors and fraudulent submissions.
But the data comes with important qualifications. The 2024-25 figures remain provisional and will be revised next year to incorporate late claims. They are also the first to reflect the combined research and development expenditure credit and enhanced support for R&D-intensive small and medium-sized enterprises (SMEs).
That means the latest statistics offer an early indication of how the revised incentives are working, rather than a definitive assessment of their long-term impact.
Josh Perry, head of sales for the UK and Ireland at innovation software provider innoscripta, said the increase in qualifying expenditure demonstrated continuing confidence in Britain’s capacity to develop new technologies and products.
“These figures show UK businesses continuing to put serious funding behind innovation, at a time when HMRC continues to tighten rules on R&D error and fraud submissions. A 7% rise in qualifying spend is a vote of confidence in the UK as a place to build new products, technologies and ideas across its businesses and institutions.”
The increase was particularly pronounced among larger companies. Qualifying R&D expenditure by big businesses rose 14 per cent to £30.2bn, twice the overall growth rate, suggesting that established corporate groups are maintaining or accelerating investment in innovation.
Average claim values also increased by 27 per cent over the year, placing greater emphasis on the accuracy and documentation of applications as HMRC scrutinises the system more closely.
“With average claims now larger, the task is making sure each one reflects the work being carried out,” Perry said.
“A technology-led approach helps innovators capture qualifying activity accurately and clearly, so they can spend their time on innovation rather than paperwork. For innovation to succeed in the UK, businesses need the funding, but also a seamless application process.”
The sectoral breakdown highlights the importance of technology and specialist services to Britain’s innovation economy. Information and communication accounted for 27 per cent of all R&D claims, matching manufacturing. Together with professional, scientific and technical services, the three sectors represented 75 per cent of claims.
The concentration illustrates how heavily the country’s research activity depends on software development, engineering and specialist technical expertise.
Perry said the figures reflected the growing importance of digital businesses, while offering an early indication of how companies were adapting to the merged tax relief scheme, which replaced the previous arrangements from April 1 2024.
“Software, services and digital businesses are at the heart of UK innovation, and that is reflected in these numbers. With the merged scheme now in its first reporting year, businesses have an early sense of how the new system is bedding in. What we want to see is these key sectors continuing to invest, innovate and claim with confidence.
“For companies planning their next round of investment, this early read on the schemes matters, as does having the right support in place to prepare claims accurately and efficiently.”
The challenge for policymakers will be ensuring that tighter compliance requirements do not discourage legitimate investment, particularly among smaller businesses that may lack the resources of larger companies to navigate complex applications.
Perry argued that companies should treat research and development as a long-term investment rather than a short-term opportunity to secure tax relief.
“The organisations likely to benefit most are those that approach R&D as a long-term strategy and put the right processes in place to evidence their work.”
Although further revisions and subsequent years of data will be needed to establish the full effect of the new system, the latest figures offer an encouraging early signal: British businesses are continuing to commit substantial sums to innovation, with larger companies leading the increase.
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