The Impact of R&D Tax Scheme Changes on UK Innovation

XU: Beyond the headlines about fraud, what are the most significant ways you see the recent changes to the R&D tax scheme impacting genuine innovation in the UK?

WC: The biggest issue we’re seeing is that many companies are now reluctant to claim. Established businesses that have been making claims for years are now stepping back, viewing the process as too risky. Confidence in the system has been eroded, with the inquiry rate now around 20%, meaning even legitimate claims require significant time and effort to defend. For many, it’s simply not worth the hassle, which is a real loss considering these businesses are entitled to this financial support.

Another trend emerging is that companies are re-evaluating their approach to R&D. With restrictions on overseas subcontractors, some are considering relocating their R&D efforts entirely to countries with more generous and less complex tax schemes. Particularly for startups, the UK is becoming a less attractive environment. When R&D tax credits were processed within a month, companies could plan cash flow accordingly. Now, delays of up to six months create uncertainty, further discouraging claims. As a result, the appetite for innovation in the UK is diminishing, with fewer startups emerging due to the unpredictability of government support.

HMRC’s Efforts to Encourage Genuine Claims

XU: HMRC aims to encourage genuine R&D claims with these changes. Are they succeeding? What are the unintended consequences?

WC: From HMRC’s perspective, they likely see these changes as a success. Several of the most problematic players in the market have been eliminated, and claim volumes have dropped by 20-30%, reducing fraudulent or spurious claims. However, this has come at the cost of undermining confidence across the board.

Even reputable advisors and accountants are withdrawing from R&D tax work due to perceived risks. Professional bodies that once supported R&D tax claims have stepped back, leaving businesses struggling to find guidance. While eliminating bad actors is a positive step, the vacuum left behind means legitimate claimants are left without the expertise they need. Restoring trust in the system will take time, and as of now, the damage is far from being repaired.

The Future of R&D in the UK

XU: Looking ahead, how do you see the UK’s R&D landscape evolving?

WC: The introduction of the Merged Scheme will likely shift the focus towards larger companies. Historically, the UK’s R&D tax credits have fostered startup innovation, but the new structure makes it harder for smaller businesses to benefit. Without the ability to claim for overseas subcontractors, many startups may choose to relocate to countries with more favourable schemes.

Small companies, particularly university spin-outs, are often the most agile and innovative, yet these changes may stifle their growth. If more R&D is concentrated within large corporations, innovation will continue—but at a slower, less agile pace. While the long-term effects remain to be seen, there’s a real risk that the UK will see a decline in the number of new startups, with innovative companies choosing to establish themselves elsewhere.

WhisperClaims’ Role in Strengthening the R&D Ecosystem

XU: Beyond simplifying claims, how does WhisperClaims contribute to a more robust and ethical R&D ecosystem?

WC: Our platform provides a structured framework that ensures claims are accurate and compliant. Without clear guidelines, even experienced advisors can make assumptions that lead to inaccuracies. One issue in the UK has been a lack of inquiry into claims—when only 1-2% were checked, advisors didn’t receive feedback and could unknowingly push the boundaries too far.

WhisperClaims builds compliance into the process. Our platform incorporates HMRC guidelines, flags potential issues, and provides structured feedback, ensuring claims are well-prepared from the outset. Additionally, we offer training and a free review of an advisor’s first claim to reinforce best practices. Unlike some software that encourages aggressive claims, we embrace ‘the power of no’—if a claim isn’t eligible, our system will flag it, preventing high-risk submissions.

Addressing Accountant and Tax Advisor Challenges

XU: What are the biggest challenges facing accountants and tax advisors today? How does WhisperClaims help?

WC: The biggest challenge is the complexity of the current system. Depending on a company’s size and financial position, they may need to navigate multiple schemes—SME, RDEC, R&D Intensive SME, the Merged Scheme, ERIS, and Northern Ireland ERIS. Determining the best option isn’t straightforward, and HMRC’s guidance isn’t always clear.

The introduction of the Additional Information Form (AIF) and pre-notification requirements further complicates matters. Many businesses have been caught out simply because they didn’t realise they needed to pre-notify their claims. WhisperClaims streamlines this process, ensuring clients only answer relevant questions, minimising unnecessary workload while ensuring compliance.

The Role of AI in R&D Tax Claims

XU: What role do you see AI and machine learning playing in the future of R&D claims? How can WhisperClaims leverage these technologies?

WC: AI has potential, but we approach it with caution. Automated claim-writing tools already exist, but without human oversight, they can generate misleading or incorrect claims. AI also has a tendency to ‘hallucinate,’ which is dangerous in a compliance-driven environment.

Instead, AI can be a valuable tool for reviewing claims. For example, it can cross-reference claims against HMRC guidance, flag inconsistencies, and highlight areas requiring further explanation. AI can also assist with research, verifying whether a product truly is innovative. If an accountant asserts that a client’s product is groundbreaking, AI can scan the internet to confirm whether similar products already exist. Rather than replacing human expertise, AI should augment it—streamlining administrative tasks while ensuring claims remain accurate and compliant.

Recommendations for Future HMRC Policy

XU: If you could influence HMRC policy, what would be your top recommendations to better support innovation?

WC: First, HMRC needs to be more accessible. The lack of direct communication channels means advisors often work in the dark, only receiving feedback when claims are rejected. Establishing structured support for advisors would improve claim accuracy and reduce errors.

Second, regulation and mandated training for advisors would ensure a higher standard of claim submissions. The recent consultation on this issue is a step in the right direction.

Finally, the tax scheme should be adjusted to better support startups and SMEs. Recent changes have shifted benefits toward larger businesses, but early-stage companies drive much of the UK’s innovation. A more balanced approach is needed to foster long-term growth.

The Future of WhisperClaims and UK R&D

XU: What excites you most about the future of R&D in the UK? How do you see WhisperClaims contributing?

WC: The most exciting prospect is the potential return of confidence in the system. When R&D tax relief first gained traction, it was an exhilarating time—companies were doing fascinating, cutting-edge work, and funding was accessible. Over the past few years, that excitement has been dampened by uncertainty and bureaucratic hurdles.

My hope is that as these changes settle, trust will rebuild, and we’ll see a resurgence of innovation. WhisperClaims will continue to support accountants and businesses, helping them navigate this evolving landscape with confidence. By making the process structured, transparent, and manageable, we aim to play a key role in ensuring UK companies can access the funding they need to drive innovation forward.