US–UK tech pact puts R&D relief in the spotlight
The recently signed US–UK Tech Prosperity Deal marks one of the largest waves of technology investment the UK has seen in a decade. With over £31 billion pledged by leading American technology firms, the UK’s innovation and tax environment has taken centre stage once again.
Microsoft will invest £22 billion to build the UK’s largest supercomputer, Google is committing £5 billion to new data centre and AI research facilities, and CoreWeave and Salesforce will invest a combined £2.9 billion in AI-driven data centres and enterprise platforms. Alongside these private investments, the government is launching targeted support, including a £520 million Life Sciences Innovative Manufacturing Fund to boost domestic production and resilience in medicines, diagnostics, and MedTech.
R&D relief is a key fiscal lever
The UK’s reformed research & development (R&D) tax relief regime plays a critical role in attracting and retaining innovation under this new wave of investment. The merged scheme now offers a single 20% above-the-line credit for profitable companies, while the Enhanced R&D Intensive Support (ERIS) scheme provides an approximately 27% payable credit for loss-making SMEs with R&D costs above 30% of total expenditure.
By allowing grants and reliefs to be layered rather than mutually exclusive, the UK has removed a long-standing barrier. For companies investing heavily in infrastructure, the ability to offset a meaningful portion of their research costs directly enhances project economics and helps improve cashflow.
Opportunities across key sectors
Life sciences
Capital grants like the Life Sciences Innovative Manufacturing Fund (LSIMF) are designed to help life sciences and MedTech firms scale production of therapeutics and diagnostics. When combined with R&D relief and the Patent Box regime, which offers a 10% corporation tax rate on qualifying intellectual property (IP), the UK presents a competitive environment for innovation and commercialisation. The challenge will be ensuring that patents and profits are retained within the UK.
Software and AI
With significant investment flowing into compute and data infrastructure, the UK is well placed to become a hub for AI model training. R&D relief applies to algorithm development, data processing, and software engineering. For early-stage AI start-ups, ERIS provides essential cashflow support. However, there is a risk that large-scale infrastructure projects deliver fewer long-term jobs unless domestic innovation is actively fostered.
Advanced manufacturing and defence
The deal’s focus on secure supply chains could benefit advanced manufacturing, semiconductors, and quantum technologies. R&D relief supports early-stage prototyping and process development, although energy costs and regulatory alignment will remain key factors in whether these investments translate into sustainable growth.
Key actions for UK innovators
- Review your R&D intensity – If your R&D expenditure exceeds 30% of total costs, you may qualify for ERIS and other enhanced reliefs.
- Localise your innovation – Ensure R&D activities and IP ownership are based in the UK to access both R&D relief and Patent Box benefits.
- Design R&D-rich projects – When applying for government or joint UK–US grants, ensure projects include eligible R&D components such as prototyping or validation.
- Prepare for compliance – HMRC’s scrutiny of R&D claims remains high. Clear documentation and evidence are key to maintaining eligibility and avoiding enquiry delays.
- Monitor emerging funding opportunities – Expect new UK–US collaborative funds and innovation vehicles. Early positioning can help reduce project risk and improve funding outcomes.
The bigger picture
The alignment of American capital, UK grant funding, and generous R&D relief offers a rare opportunity for the UK to reposition itself as a global innovation hub. Success will depend on ensuring that the intellectual property, profits, and skilled jobs generated through this investment stay in the UK.
We are here to help
At Azets, we support innovative businesses to navigate the evolving R&D tax landscape and maximise available reliefs. Whether you are an early-stage start-up or a multinational expanding UK operations, our specialists can help you assess eligibility, optimise your claims, and prepare for potential HMRC enquiries.
Get in touch with our R&D tax specialists to explore how your business can benefit from the latest reforms and incentives.