Measure
Following the budget, the government have announced that they will introduce legislation in the Finance Bill 2025-26 to clarify the corporation tax treatment of intra-group payments made in return for surrendered research and development expenditure credit (RDEC). These payments will be ignored for corporation tax purposes, provided they do not exceed the amount of the credit surrendered. Specifically, they will not be treated as taxable income for the surrendering company, deductible for the receiving company, or regarded as a distribution for tax purposes.
Alongside this, HMRC are launching a limited pilot of a new targeted advance assurance service for research and development (R&D) tax relief (the ‘Advance Assurance Pilot’). This pilot aims to address stakeholder concerns regarding the current advanced assurance scheme for small and medium-sized enterprises (SMEs), which has seen low take-up due to restrictive eligibility and administrative burdens. The new service will allow SMEs to seek certainty on specific aspects of their R&D claims before submission, helping to reduce error and fraud whilst improving the customer experience. The pilot will test demand and the resource required for a more accessible and focused assurance service.
The new legislative changes to the RDEC scheme will impact RDEC claimants that are involved in intra-group credit transfers of their RDEC benefit.
The Advance Assurance Pilot for SMEs is targeted at any SME planning to claim R&D relief and they will be able to apply to take part in the pilot, including those who have made previous claims. The pilot will be particularly beneficial for SMEs seeking clarity on complex or high-risk elements of their R&D projects.
The legislative changes to RDEC intra-group payments will apply to payments made on or after 26 November 2025.
The Advance Assurance Pilot for SMEs will launch in Spring 2026. The existing advanced assurance scheme will continue to operate whilst the pilot runs.
The administrative changes to RDEC provide helpful clarity on the tax treatment of intra-group payments, simplifying compliance, reducing administrative burdens, and promoting consistency and fairness for businesses.
The Advance Assurance Pilot for SMEs is a welcome step towards improving the administration of R&D tax reliefs, which have been subject to increased scrutiny and concerns over non-compliance. The expansion of eligibility beyond first-time claimants and the ability to seek assurance on specific issues (e.g., R&D definition, overseas expenditure, contracted-out R&D, Pay As You Eean (PAYE)/National Insurance Contributions (NIC) cap exemption) directly address key feedback from the consultation. While a pilot, it signals the government’s commitment to supporting innovative businesses whilst tackling error and fraud. It is crucial that HMRC ensure the pilot is well-resourced and provides timely, consistent feedback to build trust and encourage wider adoption of advance assurance. The consultation also highlighted mixed views on a minimum expenditure threshold, which the government have not yet committed to, but remains a point of discussion.