Budget 2025: What's Changing for R&D and Creative Industry Tax Credits?

Budget 2025 announced two changes affecting companies claiming the following industry tax credits: R&D tax credits, the Audio-Visual Expenditure Credit and the Video Game Expenditure Credit.

While neither represents a major overhaul of the schemes, both address practical issues that Finance Directors and production companies have been raising with HMRC for years.

Here's what's changing, when it takes effect, and what it means for your next claim.

Change 1: New R&D Advance Assurance Pilot (Spring 2026)

What is advance assurance?

Advance assurance is a way to get HMRC's view on whether your project qualifies for R&D tax relief before you submit your claim; companies have been able to use the advance assurance service since 2015. Instead of claiming first and potentially facing a HMRC enquiry later, you can ask HMRC to review your project upfront.

You submit details of your R&D activities, HMRC reviews them, and if they agree your project qualifies, you can proceed with your claim with greater confidence. Your advance assurance agreement will apply to your first three accounting periods.

The advance assurance scheme applies to SMEs claiming R&D tax relief for the first time with a turnover below £2 million and less than 50 employees.

HMRC says it guarantees that your claim will be accepted if you proceed with your claim.

What's changing with advance assurance?

The Budget announced that HMRC will pilot a targeted advance assurance service from spring 2026.

This follows from a recent consultation carried out from March to May 2025. HMRC asked for input on who should be eligible (company size, sector, claim history), whether assurance should be voluntary or mandatory for certain firms/sectors, when in the R&D process the clearance should be sought (pre-activity/pre-claim/pre-payment), and whether there should be a minimum expenditure threshold for R&D claims.

Here's what we know about the new scheme:

The new pilot will be "targeted"; HMRC will specify which aspects of R&D claims they'll review under the scheme, rather than assessing entire claims.

The pilot launches in spring 2026 and is aimed at small and medium-sized enterprises. HMRC says it will provide "clarity on key aspects" of your R&D claim before submission. The government will also publish a summary of responses to its advance clearance consultation.

But there's a lot we don't yet know. HMRC hasn't specified which "key aspects" of claims will be covered, how the application process will work, what the timeline will be, or whether the assurance will be binding if HMRC later opens a compliance check.

Should you use the new advance assurance scheme?

It depends on whether HMRC addresses the uptake issues with the current scheme. The existing advance assurance saw only 80 applications in 2023-24 despite around 11,500 eligible companies; a take-up rate of well under 1%.

We know little about the specific changes this new pilot will implement regarding eligibility criteria, whether it will be voluntary or mandatory or minimum spend thresholds.

If you're a first-time claimant concerned about compliance, it may be worth exploring when the pilot launches. But don't delay your claim waiting for it. Spring 2026 is still a few months away, and there's no guarantee the pilot will address the certainty issues that have plagued the current scheme.

If your R&D work happening now qualifies under existing rules, you should claim relief for it.

Change 2: Tax treatment of intra-group credit payments (Effective 26 November 2025)

What's the issue with intra-group credit payments?

Companies can surrender Research and Development Expenditure Credit (RDEC), Audio-Visual Expenditure Credit (AVEC), and Video Games Expenditure Credit (VGEC) to other group entities. This part is clear in legislation; it's an established mechanism for moving credits within a corporate group.

But here's what isn't clear: what happens when the receiving company then pays the surrendering company for that credit? Commercially, it's just an internal cash movement to compensate one entity for transferring value to another. But for Corporation Tax purposes, there's currently no explicit statutory treatment.

This creates uncertainty. HMRC could potentially treat these payments as:

• Taxable income for the company receiving the payment
• Non-deductible payments for the company making the payment
• Distributions between group companies
• Loans requiring documentation and interest
• Transfers subject to transfer pricing rules

That uncertainty matters, especially as more groups adopt AVEC and VGEC, and as R&D schemes continue to evolve.

What's changing with tax credits?

The government will legislate in Finance Bill 2025-26 to set out the Corporation Tax treatment of intra-group payments made in return for surrendered RDEC, AVEC, and VGEC.

While we're waiting for the draft legislation to see the exact treatment, the expectation is that these payments will be made tax-neutral, avoiding any doubts about the transactions being exposed to tax.

These Budget announcements don't change the fundamental eligibility criteria for R&D tax credits, AVEC, or VGEC. Your qualifying R&D expenditure, production costs, and claim processes remain the same.

Who does this affect?

This change is relevant if your business operates in any of these structures:

• Groups operating across multiple entities where one company undertakes the qualifying activity and another company benefits from the credit.
• Companies surrendering RDEC credits between group companies, particularly common in larger R&D-intensive businesses.
• Production companies using AVEC for film or high-end TV production across subsidiary structures.
• Gaming studios using VGEC across parent companies, development subsidiaries, or publishing entities.

Here's a practical example: Company A develops a video game and claims VGEC. It surrenders £200,000 of that credit to Company B, its parent company. Company B then pays Company A £200,000 to compensate for the credit.

Under current rules, there's uncertainty about whether Company A owes Corporation Tax on that £200,000 payment, or whether Company B can deduct it as a business expense. The new legislation will clarify this treatment, likely making the payment tax-neutral so neither company faces an unexpected tax charge.

The bottom line

If you're currently claiming any of these reliefs, you should continue as normal. The advance assurance pilot won't affect your ability to claim in the usual way. The intra-group payment change only affects companies that surrender credits within a group structure and the Finance Bill amendments will be considered a legislation tidy-up exercise.

Both changes aim to provide more clarity for innovative and creative businesses, though the real impact will depend on how HMRC implements them. If you'd like to discuss how these changes affect your R&D tax credits or creative tax reliefs, our team can help you navigate the implications for your business.