The UK government has put high growth companies back at the centre of its industrial strategy, with a Budget that combines a £7 billion boost for innovation funding with the largest overhaul of entrepreneur tax incentives in a generation.
For Chief Financial Officers and Heads of Tax in scaling businesses, this is not simply another political announcement. It reshapes the mix of equity, debt and non dilutive funding available in the UK, and it arrives at a time when R&D tax relief is under greater scrutiny and SME claims are falling.
The Chancellor’s new package is built around three core pillars.
The government is:
EMI has not been updated for around 15 years. Extending the lifetime of options and raising the employee cap is designed to let companies keep offering meaningful equity deeper into their growth journey, rather than hitting a hard stop as headcount passes traditional thresholds.
A £7 billion injection into UK Research & Innovation (UKRI)
A substantial new commitment to UKRI will channel long term funding into science and technology, with an explicit focus on pushing breakthroughs from lab to market and keeping promising firms in the UK rather than losing them overseas at Series B or C.
Two specific initiatives stand out:
Innovate UK Growth Catalyst: a new £130 million programme that combines grants with hands on support for cutting edge science and tech firms. A previous iteration of this model turned £156 million of grants into £1.55 billion of follow on investment, a tenfold multiplier.
British Business Bank capital: the British Business Bank will invest £5 billion into growing companies, with the explicit goal of crowding in private capital and helping firms through the “valley of death” between R&D and commercial scale.
Alongside this, the government has committed to cut the administrative cost of regulation by 25 percent across the Parliament, which it estimates will save businesses around £6 billion a year, and has appointed Alex Depledge MBE as Entrepreneurship Adviser until 2026 to lead policy work on barriers to scale up growth.
HMRC’s latest statistics show that total R&D tax relief support fell slightly to £7.6 billion in 2023 to 2024, with the number of claims down 26 percent year on year and SME claims down by around 31 percent.
At the same time, claims are becoming larger on average, reflecting a pivot towards more intensive, higher value R&D and a smaller universe of claimants able to navigate the tightened rules and additional information requirements. For CFOs, that means:
Into this environment, the “scale up surge” is effectively a counterweight. It strengthens the growth stage parts of the system (UKRI programmes, Innovate UK, the British Business Bank, equity incentives) precisely as the pure tax based support for smaller claims becomes more demanding.
From a finance leader’s perspective, the announcement cuts across several persistent pain points:
The strategic takeaway is that the UK funding environment is becoming more barbelled. There is tougher scrutiny at the small claim, lower value end, combined with more firepower at the high growth, strategically important end. Finance leaders need to decide which side of that barbell their business will occupy over the next three to five years.
FI Group has observed this shift first hand in its work with high growth clients across technology, life sciences, manufacturing and energy. Many CFOs are now asking a different set of questions:
FI Group’s consultants are seeing particular interest in integrated innovation funding strategies that map a three to five year plan to specific instruments, rather than treating each grant or R&D claim as a one off transaction. That includes stress testing scenarios where R&D tax relief continues to tighten, while Growth Catalyst and UKRI competitions become more central to the funding mix.
From a third party perspective, FI Group’s role is to help companies translate macro level policy into concrete funding decisions. The consultancy supports CFOs by identifying eligible projects, modelling cash flow impacts, coordinating bids across multiple programmes and ensuring that R&D tax claims and grant funded workstreams are aligned rather than operating in silos.
For finance leaders in scaling businesses, a structured response might look like this:
Map your growth projects to the new funding landscape
Review equity incentive strategy under the new EMI and EIS rules
Re benchmark your R&D tax position
Engage early with British Business Bank and specialist lenders
Build an internal “innovation finance” capability
FI Group is an international innovation funding consultancy that works with more than 15,000 clients worldwide, helping them secure R&D tax relief, national and European grants, and innovation loans each year. Drawing on this experience, FI Group helps UK scale ups to:
By treating the new “scale up surge” as one part of a wider funding ecosystem, FI Group enables CFOs and finance teams to convert policy announcements into extended runway, stronger balance sheets and faster routes to market, without undermining long term shareholder value.
A new £14 million UK Germany quantum funding initiative will back joint R&D, photonics and shared standards. For quantum start ups and corporates, this signals fresh bilateral grant opportunities and a need to align R&D tax relief, grant funding and private capital.
The UK and Germany have announced a £14 million package to deepen collaboration in quantum technologies, unveiled during German President Frank Walter Steinmeier’s State Visit to the UK in December 2025.
The announcement has three pillars:
Government analysis suggests quantum could contribute around £11 billion to UK GDP and over 100,000 jobs by 2045, reflecting the scale of the opportunity in quantum computing, sensing and navigation systems.
In short, this initiative is not just symbolic diplomacy. It is a targeted intervention to knit together two of Europe’s strongest quantum ecosystems around joint funding, standards and applied industrial research.
Detailed call guidance has not yet been published, but the press release confirms that a £6 million bilateral quantum R&D call will open in early 2026, with matched contributions from Innovate UK and VDI Germany.
Based on previous UK bilateral programmes, quantum innovators should expect several common design features:
Alongside the call, the £8 million for Fraunhofer’s Glasgow centre is designed to accelerate commercialisation by supporting applied photonics research that underpins many quantum systems, as well as providing UK firms with a high quality industrial R&D partner.
The NPL PTB agreement on quantum standards will help ensure that devices and protocols developed under this initiative are aligned with emerging international metrology frameworks, lowering future interoperability risk for manufacturers.
This announcement sits within a wider UK Germany Strategic Science and Technology Partnership, launched in 2024 under the Kensington Treaty to deepen collaboration in areas including quantum, AI and clean tech.
For quantum specifically:
On the macro side, FI Group’s recent analysis shows that UK R&D spending has fallen by £2.8 billion in real terms since 2021, raising questions about how the UK will sustain its growth ambitions. HMRC’s latest statistics confirm that the number of R&D tax credit claims dropped by 26 per cent in 2023 to 2024, with SME claims down 31 per cent and total support estimated at £7.6 billion.
In that context, this UK Germany quantum funding initiative is significant for three reasons:
For quantum companies that sit at the intersection of capital intensive hardware and long time to revenue, those signals matter.
CFOs in quantum and advanced technologies face a particular set of pressures:
The UK Germany initiative touches all three.
Quantum and deep tech businesses should treat the UK Germany initiative as a catalyst to professionalise their funding strategy rather than as a one off opportunity.
FI Group works with quantum, photonics and advanced computing companies across the UK, Germany and the wider EU to:
In prior publications on UK R&D spending and quantum computing funding, we have highlighted the need to blend national and international grants with tax incentives to offset inflationary pressures and maintain innovation momentum. Companies seeking a deeper dive into UK competition mechanics can draw on funding advisers’ guidance on UK grant competitions and R&D tax services published on our website.
For leadership teams looking to respond pragmatically, a structured approach helps. Over the next 6 to 12 months:
Before final guidance is released, many innovators share similar questions. The answers below summarise what is known so far and how companies can position themselves.
Q1. When will the UK Germany quantum funding call open?
The government announcement states that a £6 million joint quantum R&D funding call from the UK and Germany will launch in early 2026, with Innovate UK and VDI Germany each contributing £3 million. Exact opening and closing dates will be set out in the formal competition briefing notes.
Q2. Who is likely to be eligible to apply?
While detailed eligibility is pending, prior bilateral calls suggest that consortia will include at least one UK and one German organisation. UK applicants are likely to include SMEs, large companies and research organisations eligible under Innovate UK rules, with German partners funded under VDI managed schemes. Academic only projects are unlikely to be prioritised over industry led collaborations.
Q3. Can companies combine this funding with R&D tax relief?
In principle, UK companies can still claim R&D tax relief on eligible expenditure, but the interaction between notified state aid and the merged scheme can be complex. Some costs supported by notifiable grants may need to be excluded or treated under the RDEC style mechanism. CFOs should model scenarios and seek specialist advice to avoid double counting or non compliant claims.
Q4. How does this initiative relate to other quantum grants in the UK and EU?
The bilateral call will sit alongside national instruments such as the UK National Quantum Technologies Programme and specific Innovate UK competitions, as well as European schemes including Horizon Europe and EuroHPC. Companies may be able to run sequential or complementary projects, but duplicating costs across programmes is prohibited.
Q5. What should CFOs and leadership teams do now?
The most productive actions now are partner scouting, project prioritisation and funding strategy design. That includes mapping where bilateral projects fit within your wider quantum roadmap, planning match funding and stress testing cash flow. Being ready with a credible, costed project concept when call details appear will be more valuable than reacting at the last minute.
The new UK US pharmaceuticals deal is not just a trade story. It reshapes the economics of investing in UK biotech and life sciences by improving export margins, signalling higher domestic spend on innovative medicines, and strengthening the UK’s position as a launch market for new therapies. That combination directly influences how CFOs think about R&D tax relief, grant funding and the overall cost of capital for development pipelines.
For biotech and pharmaceutical finance leaders, the deal effectively reduces commercial risk on successful assets while government incentives continue to subsidise the riskiest R&D stages. The strategic question is how to align R&D tax, grants and private capital so that the organisation is positioned to exploit the new market access and pricing environment rather than watching others do so.
The agreement delivers three pillars that matter for funding decisions in biotech and life sciences:
When commercial and regulatory conditions become more favourable, R&D projects further up the pipeline become financeable. That is where R&D tax relief and non dilutive grant funding in life sciences remain critical. They allow CFOs to bring forward or expand projects that can now plausibly reach a more attractive US and UK market.
The deal sits under the broader UK US Economic Prosperity framework and gives the UK a uniquely generous tariff position:
Major companies have already responded. The government notes that firms such as Moderna, Bristol Myers Squibb and BioNTech are committing significant new capital, with Bristol Myers Squibb alone anticipating upwards of 500 million dollars of investment in UK research, development and manufacturing over five years.
For CFOs, this is a clear demand signal. It suggests that investment committees and global portfolio boards are re rating the UK as a place to site clinical development, advanced therapy manufacturing and data driven research.
Improved access to the US market with zero tariffs, combined with a more generous domestic medicines budget, strengthens revenue forecasts for successful assets. That has several finance consequences:
For biotech CFOs managing investor expectations, this environment can support stronger narratives around pipeline value, provided the funding stack can sustain the higher level of innovation spend required.
HMRC data show that R&D tax relief remains one of the largest targeted innovation incentives in the UK. In 2023 to 24, companies claimed around £7.6 billion of support on £46.1 billion of qualifying R&D expenditure, with manufacturing and professional, scientific and technical sectors accounting for the majority of relief.
That matters for life sciences because:
For life sciences, key features of the regime include:
Used correctly, R&D tax relief effectively reduces the net cost of research programmes and extends runway without additional dilution. In the context of the UK US pharmaceuticals deal, CFOs can justify accelerating or broadening programmes that are both technically eligible and now more commercially attractive.
The trade agreement does not replace the need for grant funding. Instead, it increases the value of progressing candidates through earlier, riskier stages so that they are ready to exploit improved market access.
Life sciences companies can continue to draw on substantial non dilutive grant funding, for example:
Depending on technology readiness and applicant type, grants can support 70 to 100 per cent of eligible costs. The challenge for CFOs is navigating interactions between grants and the R&D tax regime, particularly under the merged scheme where notified state aid can shift work into RDEC treatment.
At FI Group, we specialise in R&D tax relief, innovation grants and broader funding strategy, and we see the UK US pharmaceuticals deal as a catalyst for more deliberate funding architecture in biotech and medtech.
Drawing on its work with UK, European and US based clients, FI Group typically helps CFOs to:
Because FI Group operates across major life sciences centres, including the UK, wider Europe and the United States, we can help management teams understand how the UK US deal interacts with EU funding, US BARDA or NIH partnerships, and global tax positions, without turning the funding strategy into a patchwork of unconnected incentives.
In practical terms, finance leaders in the sector may wish to:
Before the detailed FAQ schema is implemented, it is helpful to address common questions directly.
By removing US tariffs on UK pharmaceutical exports, increasing domestic spend on innovative medicines and speeding up clinical and data infrastructure, the deal raises expected returns on successful therapies. That strengthens the business case for investing in R&D that is also supported by R&D tax relief and grants.
The underlying R&D tax rules are unchanged by the deal, but more projects will now have stronger commercial rationales. Finance teams should ensure all eligible scientific and clinical work is captured within the SME, RDEC or merged scheme, with careful treatment of grant funded activity common in biotech.
Yes. Innovate UK, Biomedical Catalyst, NIHR and European programmes continue to provide substantial non dilutive funding, and their coexistence with R&D tax relief remains possible, although notified grants can affect which scheme applies. Rigorous cost allocation and documentation are essential to avoid double counting and to maintain compliance.
No. The agreement improves tariff conditions and creates a more favourable context for UK pharmaceuticals, but regulatory approval, pricing negotiations and individual market access strategies are still required. Companies must continue to plan for US payer dynamics and regulatory risk alongside the improved trade conditions.
CFOs should prioritise pipeline mapping against the new trade and pricing environment, optimisation of R&D tax and grant positions, and strengthening of enquiry ready evidence for claims. They should also reassess location and manufacturing choices in the light of zero tariffs and improved domestic medicines budgeting.
FI Group UK has officially moved into our new London office at 40 Leadenhall Street, right in the middle of the City of London’s financial district. It is more than a change of address. It is a statement about where we want to be for our clients, our team and the future of innovation funding in the UK.
From this new base, we are even better positioned to support CFOs, Heads of Tax and founders who need clarity on R&D tax reliefs, grants and innovation finance in an environment that is becoming more complex, more international and more strategic every year.
40 Leadenhall Street is a new landmark office development in the City of London insurance and banking district, within walking distance of Bank, Liverpool Street and Fenchurch Street stations. It brings together global financial institutions, high growth companies and advisory firms under one roof in one of Europe’s most connected business locations.
For FI Group UK, this location matters for three reasons:
40 Leadenhall has been designed as a modern workplace that can accommodate thousands of professionals, with premium amenities, collaboration spaces and event facilities. For a consultancy that spends so much time helping others plan for the future, it is the right kind of environment for our own next chapter.
Our work in London has always been about more than compliance. We work with finance and leadership teams who want to treat R&D tax relief, grants and innovation loans as levers in a wider capital allocation strategy, not just a year end exercise.
From 40 Leadenhall Street we can:
Whether a client searches for “London R&D tax consultancy” or “London grants consultancy”, they are ultimately looking for the same thing: a partner who can reduce risk, protect cash flow and help them keep investing in innovation with confidence. That is the role we intend to play from our new City base.
This move is also about giving our people the right space to do their best work. The new office at 40 Leadenhall Street offers:
It reflects the reality of our work. R&D tax and grants consultancy is a team sport. It requires tax specialists, engineers, scientists, finance professionals and sector experts to interpret guidance, challenge assumptions and produce claims that are robust under scrutiny. A high quality environment helps us bring those disciplines together around the client.
While London is an important strategic step, our Edinburgh office remains very much at the heart of FI Group UK. We continue to support innovative businesses across Scotland from our base there, working closely with companies in advanced manufacturing, energy, life sciences, software and more.
For organisations looking for R&D tax consultants in Edinburgh or grants consultants in Edinburgh, our message is simple. Clients in Scotland still benefit from a dedicated local team that understands policy, the regional innovation landscape and the realities of scaling from seed to Series A and beyond.
The combination of Edinburgh and London gives FI Group UK genuine UK wide reach. It allows us to sit alongside clients wherever they are, while connecting them into a single team and a single methodology.
FI Group is a global leader in R&D incentives and innovation funding, with offices across Europe, the Americas and Asia. That footprint matters for UK headquartered groups whose R&D, manufacturing and IP are increasingly distributed across multiple jurisdictions.
From 40 Leadenhall Street and Edinburgh we can:
In short, your headquarters sees the full picture, and your teams feel the local support. Global operations do not need global headaches.
Our move to 40 Leadenhall Street is ultimately about the people behind the work. As Dr Fawzi Abou-Chahine, Funding Director at FI Group UK, puts it:
“This new London office positions us exactly where our clients expect a strategic advisor to be. We can sit across the table from CFOs, founders and technical leaders, understand their innovation agenda and then connect them to the right mix of R&D tax reliefs and grants in the UK and internationally. It is a natural next step in our growth.”
If your business is investing in innovation and you want a clearer, more strategic approach to R&D tax relief and grants, our team in London and Edinburgh is here to help. Contact FI Group UK to arrange a conversation at 40 Leadenhall Street or online and see how we can strengthen your innovation funding strategy across the UK and internationally.
From Spring 2026 the government will pilot a targeted advance assurance service for R&D tax relief, allowing any SME planning to claim to apply for HMRC clearance before filing. The aim is to give earlier certainty on eligibility while tightening controls against error and fraud, without changing the headline credit rates.
HMRC is shifting towards advance assurance because error and fraud in R&D reliefs have been unacceptably high, and compliance activity has already had to ramp up significantly.
Over the last few years, R&D tax reliefs have been reframed as a high risk part of the corporation tax system rather than a benign incentive:
Against this backdrop, HMRC’s consultation on R&D tax relief advance clearances set three objectives: reduce error and fraud, improve customer experience and increase certainty so businesses can plan R&D investment confidently.
Professional bodies and firms are broadly supportive of better up-front certainty, but they stress two concerns:
For CFOs, the direction of travel is clear. The UK is moving from “file and hope” to “pre-assess and prove”. R&D tax relief will increasingly resemble other regulated, assurance-driven tax processes.
The pilot is designed to broaden access to assurance and to test what a future, possibly more permanent clearance system could look like.
In outline, the Autumn Budget materials confirm that:
Although detailed guidance will follow, CFOs should expect a process along the following lines:
In other words, the pilot turns the current informal conversations many companies have with advisers into a formal, binding pre-assessment step with HMRC for those SMEs willing to invest in getting ahead of the curve.
For CFOs, the shift to advance assurance changes R&D tax relief from a back-office optimisation into a board-visible risk and capital allocation decision.
Key implications for finance leaders:
The underlying message is simple: R&D relief is now part of the cost of capital conversation, not just a compliance line item.
The advance assurance pilot will reward companies that treat R&D tax relief as a governed process, not a scramble to “find costs” at filing.
A governed approach typically includes:
| Aspect | File and hope (old) | Pre-assessed and governed (new) |
| Timing of R&D work vs claim | Claim built many months after year end | Activities and costs assessed during the project |
| Role of the board | Limited visibility of detailed claims | Regular oversight via audit and risk reporting |
| HMRC interaction | Enquiries after cash is received | Dialogue before claims and during assurance |
| Evidence | Retrospective narratives and sampling | Contemporaneous records and structured evidence |
| Risk profile | High enquiry risk and potential clawbacks | Lower enquiry risk, but higher front-loaded effort |
For CFOs, the question is no longer “Can we still claim R&D tax relief”, but “Are we willing to own a governed process that would withstand future advance assurance scrutiny”.
The move towards pre-assessment does not happen in isolation. Many OECD countries already embed pre-approval or ruling mechanisms into their innovation tax regimes, often as a condition for higher rates or faster refunds.
HMRC’s consultation explicitly draws on international comparisons and explores different stages at which assurance could be given, from early project planning through to pre-filing checks. nal groups, this creates both challenges and opportunities:
FI Group’s own International R&D Tax Schemes 2025 guide sets out the different models in over 20 countries. For board-level discussions, the message is that the UK is normalising, not isolating, its approach.
FI Group already acts as a strategic partner for CFOs who want R&D tax relief to support, not undermine, their funding strategy. FI Group UK+2FI Group UK+2
Our role in the new regime is threefold:
FI Group operates in more than 15 countries, giving UK-based CFOs global reach with local expertise, and a single senior contact who can coordinate UK advance assurance alongside international R&D incentives, grants and innovation loans.
“CFOs can no longer afford to treat R&D tax as a late adjustment. Advance assurance pushes the discussion into the boardroom, where R&D investment, tax risk and funding strategy meet. The good news is that with the right governance and evidence, you can turn this into a powerful source of certainty rather than just more paperwork.”
Dr Fawzi Abou-Chahine, Funding Director, FI Group UK
If you are considering advance assurance, now is the time to book an R&D risk review ahead of the pilot and to ensure your 2025 claims are built in a way that can be re-used rather than rewritten in 2026.
Before the FAQs, a brief note. The pilot scheme is still being designed, but the direction is set. These answers reflect the Budget announcements and current consultation outcome and will need updating as HMRC publishes detailed guidance.
No. The targeted advance assurance pilot announced for Spring 2026 is a voluntary service for SMEs planning to claim R&D relief. However, the consultation does explore mandatory clearances for certain groups in future, so CFOs should treat this as a testing ground for a more structured regime.
SMEs with material R&D claims, a strong pipeline of projects and a desire to reduce enquiry risk will benefit most. Groups with external investors, complex structures or cross-border R&D are also likely candidates, because assurance can simplify conversations with boards, auditors and overseas tax authorities.
Advance assurance should give a strong presumption of acceptance provided the company keeps projects within the agreed scope and documents changes properly. It is not a blank cheque. CFOs will still need to maintain robust evidence and ensure costs, subcontracting and overseas work are treated correctly in line with current rules.
Start by mapping your global R&D portfolio and incentives. Where you already use pre-approval mechanisms overseas, align UK processes and documentation so that your technical narratives, project classifications and governance model work across jurisdictions. FI Group can coordinate this through its international R&D tax and grants advisory teams.
CFOs should begin in the 2025 accounting period, not when the pilot goes live. That means: reviewing historic claims, tightening in-year documentation, defining governance roles and deciding which 2026 projects would be first candidates for assurance. Early movers are likely to secure smoother HMRC engagement.
The 2025 Budget keeps VCTs and EIS at the heart of the UK’s venture ecosystem, but it cuts VCT income tax relief from 30 per cent to 20 per cent while sharply increasing company and lifetime investment limits and size thresholds from April 2026.
In short, the envelope gets larger but the main retail incentive for VCT investors becomes less generous at entry.
| Feature | Before 2025 Budget | After 2025 Budget (from April 2026) | Direction for scale ups |
| VCT Income Tax relief rate | 30% on up to £200k per year | 20% on qualifying new VCT subscriptions | Less attractive to higher rate investors |
| EIS Income Tax relief rate | 30% on up to £1m, £2m KI companies | 30% retained | Neutral to positive |
| Company investment and asset limits | Lower limits, tighter gross assets caps | Limits and thresholds materially increased | Better for later stage scale ups |
| Scheme duration | Sunset risk from 2025 | Extended to April 2035 | Long term certainty |
The political message is that reliefs should be more focused on genuine growth capital, not simply tax shelters. By cutting VCT relief but lifting limits, ministers are signalling support for larger, higher growth scale ups while asking wealthier investors to accept less generous upfront subsidies.
There are three overlapping narratives:
For CFOs, the motive matters less than the mechanics. The relief cut changes the economics of attracting VCT capital, even as the system becomes more accommodating of larger rounds.
Later stage, high growth scale ups that already command institutional interest stand to benefit most, while early stage companies reliant on tax motivated VCT investors may find rounds slower and more expensive to close.
| Group | Likely outcome |
| Later stage scale ups | Benefit from higher company and lifetime limits and larger cheques per deal. |
| Knowledge intensive companies | Retain strong EIS support and gain room for larger follow on investments. |
| Fund managers with strong brands | Still able to market VCTs on diversification, dividends and access to deal flow. |
| Early stage, riskier SMEs | Face more selective investor appetite as relief falls and risk free rates stay higher. |
| High income retail investors | See less value in VCTs as a tax planning tool compared with pensions or ISAs. |
| Founders outside London | Risk being squeezed if capital retrenches further to familiar, urban clusters. |
Investor commentary already reflects this split. Industry bodies and advisers have consistently argued that a stable and generous relief regime is a key reason why the UK venture market punches above its weight globally. Cutting front end relief risks eroding that edge at the margin.
For scale up CFOs, the VCT package means VCT backed equity is likely to remain available, but the marginal cost of securing it may rise and the bar for investor conviction will be higher.
Practically, you should expect:
From a board perspective, the message is that equity is still available but less subsidised, so your weighted average cost of capital is drifting upward unless you deliberately counterbalance it with non dilutive sources.
The VCT changes strengthen the case for treating grants and R&D tax relief as core parts of your capital structure rather than “nice to have” add ons. Over the life of a project, a well designed mix of public funding can materially offset the drag from weaker investor tax relief.
Three practical moves stand out:
If you have overseas operations, the calculus is cross border. FI Group’s European and US presence means you can benchmark UK incentives against, for example, Horizon Europe participation or national R&D credits in other jurisdictions, and decide where marginal projects should sit. Global operations do not need global headaches.
FI Group positions VCT and equity strategy within a broader innovation funding architecture, rather than treating it in isolation from grants or tax. In the UK that typically involves:
Because FI Group operates across Europe, the UK, the United States and Latin America, we can align HQ expectations with local execution. Your HQ sees the full picture. Your teams feel the local support.
As Dr Fawzi Abou Chahine, Funding Director at FI Group UK, puts it:
“CFOs are not asking whether VCTs will disappear. They are asking what happens to their cost of capital when VCT relief, R&D tax incentives and grant intensity all move at once. Our job is to show, with numbers, how a different blend of public support can keep innovation projects investable even as the tax mix hardens.”
If you are exploring how VCT fits into your funding strategy, you may also want to review our R&D tax relief advisory services and our UK and European grant funding support, which can be structured alongside equity to maximise non dilutive leverage.
A short briefing section you can lift directly into a board pack or investment committee paper.
No. VCTs remain designed to back smaller, high growth trading companies and the schemes have been extended to 2035. The relief cut may reduce investor appetite at the margin, but managers still need deal flow and the higher limits create more space for follow on funding of successful portfolio companies.
Likely yes, at the margin. EIS retains its 30 per cent Income Tax relief and continues to be positioned as a high risk, high incentive route for backing earlier stage companies. For CFOs, that means funding strategies will need to balance both schemes depending on stage, sector and investor base.
You should:
For most scale ups, it is to rebuild the funding mix narrative. Arrive at investor meetings with a clear explanation of:
That makes you easier to back in a world where investor relief is less generous and scrutiny is higher.
Rachel Reeves’s 2025 Budget raises the after tax cost of equity for UK scale ups. We explain the new taxes on dividends, capital gains and employee ownership, and how CFOs can keep the blended cost of capital competitive through grants, loans and optimised R&D tax relief.
The 2025 Budget left the main corporation tax rate unchanged but increased tax on dividends, savings, property income, capital gains and employee ownership exits. That combination raises the after tax cost of equity for founders and investors, even as ministers continue to talk about growth and innovation.
For CFOs, it is the interaction of measures that matters, not any single line item. The key moves affecting innovation capital are:
In other words, the government has chosen to keep the headline corporation tax rate steady while tightening the tax take on exits, distributions and asset income. For innovation driven businesses, that is exactly where founder and investor returns are realised.
| Measure | Before | After | From when | Who it hits most |
| Dividend tax (higher rate) | 33.75% | 35.75% | 2026/27 onwards | Founder managers, angel and VC investors |
| CGT lower rate on shares | 10% | 18% | 2025/26 onwards | Basic rate founders and early investors |
| CGT higher rate on shares | 20% | 24% | 2025/26 onwards | Higher rate founders, institutional investors |
| BADR / Investors’ Relief rate | 10% | 18% | 2026/27 onwards | Entrepreneurs, business angels |
| EOT CGT relief | 100% relief on qualifying disposals | 50% relief, balance taxed at CGT rates | 26 Nov 2025 | Founders planning employee ownership exits |
By raising taxes on dividends, gains and employee ownership exits, the Budget reduces the net return founders, early investors and fund managers achieve on successful innovation. That, in turn, pushes up required internal rates of return and the hurdle rates used for innovation projects.
A simple illustration:
That eight to nine per cent reduction in net proceeds is economically equivalent to shaving a full turn off an exit multiple at many deal sizes.
Similar mechanics now apply at portfolio level:
Layered on top are earlier decisions to increase the taxation of carried interest and to bring more carried interest into income tax rather than CGT over time, which directly affects the net returns of fund managers backing high risk innovation.
The result is straightforward: equity becomes more expensive, because investors require higher pre tax returns to achieve the same post tax outcomes. That higher required return ultimately feeds back into:
CFOs are already hearing this language in term sheet conversations.
Initial reaction to the Budget has been sharply divided. Commentators on the centre left have broadly welcomed the shift towards taxing wealth and property more heavily, but business groups have warned about the signal it sends to entrepreneurs and scale up investors.
Professional and legal commentary on EOTs has also shifted tone. What was once marketed as a clean, tax efficient route to employee ownership is now seen as more complex, with changing rules and higher fiscal risk for founders contemplating that route.
In the R&D space, professional bodies have warned that changes to R&D tax relief and tighter compliance are already discouraging some genuine innovators.
For a scale up CFO, the message from all of this is not “capital is going to vanish”, but rather: more of the value created by your innovation portfolio will be recycled to the Exchequer before it reaches founders and investors. The bar for investment approval rises accordingly.
For CFOs, the challenge is not theoretical. The 2025 Budget changes feed directly into how you model, negotiate and report on innovation investment.
In practice, you are likely to face:
For multinational groups, there is an additional layer: global treasury teams will compare UK innovation returns with those in other markets, adjusting for these tax changes. If the UK cannot demonstrate a competitive blended cost of capital, projects may shift elsewhere.
Grants, innovation loans and R&D tax relief cannot undo the Budget, but they can materially reduce the blended cost of capital for qualifying innovation. The point is not to “patch the hole” with a single scheme, but to design a deliberate funding architecture.
Recent HMRC statistics show that total R&D tax relief support in 2023–24 was still around £7.6 billion, tied to £46.1 billion of qualifying R&D expenditure, although support is down slightly and claim volumes have fallen sharply, particularly for SMEs.
The direction of travel is clear:
For CFOs recalibrating hurdle rates, this matters because:
The practical implication is that funding design now sits alongside tax structuring and project appraisal as a core part of capital allocation.
FI Group works with CFOs, Heads of Tax and boards to redesign the funding stack around innovation, so that higher personal and capital taxes do not automatically translate into uncompetitive project economics.
As Dr Fawzi Abou Chahine, Funding Director at FI Group UK, puts it:
“Most CFOs accept that the tax environment has hardened. The question they bring to us is whether their innovation portfolio still clears the hurdle rate once you overlay the grants, innovation loans and R&D incentives they could be accessing but are not yet using strategically.”
Because FI Group operates in multiple jurisdictions, we can align HQ strategy and local execution. Your head office sees the global innovation portfolio; your UK teams feel the local support on specific claims, competitions and funding applications. Global operations do not need global headaches.
The final piece of the puzzle is helping boards and leadership teams turn these changes into concrete actions. These brief FAQs are designed for board packs and investment committees.
No. The main corporation tax rate remains at 25 per cent. The pressure on innovation capital comes instead from higher taxes on dividends, savings, property income, capital gains and employee ownership exits, which reduce the net returns to founders, investors and key employees.
They will not trigger an overnight exodus, but they do raise the bar. Investors will demand stronger fundamentals, clearer capital efficiency and, in many cases, evidence that companies have maximised grants and R&D relief before asking for larger equity cheques at higher valuations.
Priorities for most CFOs will include:
