Introduction to R&D Tax Credits in Water & Waste

Water companies collect, treat, and deliver billions of litres of safe, clean water to a population of approximately 69m people every day – as well as being responsible for collecting and treating sewage and wastewater before releasing it safely back into the environment.

Alongside Finland, Iceland, Netherlands, Norway, and Switzerland, the UK is leading the way with drinking water that boasts a 99.95%quality rating. In comparison, Germany has 99% (8th place) and the US has 86.1% (26th place).

Maintaining this quality requires water companies to overcome several challenges, such as the energy crisis, climate change, wastewater and the excessive use of water in food production.

Technology plays a crucial role in ongoing research to find new, innovative ways to transform sewage water into drinking water. Often, this involves the need to overcome scientific uncertainties and technological challenges – therefore making the work eligible for the UK Government’s R&D Tax Relief scheme.

Trends in Water & Waste

R&D tax credits are a generous financial incentive offered by the UK Government to encourage innovation. There are two types of relief that allow companies to claim back between £0.11-£0.33 for every £1 invested in developing new products, processes, systems or devices – or improving what already exists.

Despite the innovation taking place within the sector, it’s surprising that less than 1% (0.56%) of SME R&D tax claims are made by companies in the water, sewerage and waste sector. From a total of 33,880 SME claims that are valued at £1.8bn, the sector totals just 190, which are valued at £10m.

So are you claiming what you’re entitled to?

What counts as R&D for tax purposes in water and waste

The following list is not exhaustive, but provides an indication of the scale of R&D for tax purposes that is taking place in the water and waste sector:

Drinking water Wastewater Production
  • Water purification
  • Water filtration systems
  • Water softeners
  • Distillation systems
  • Water re-use to create a resilient water supply
  • Evaluation of polluting components, their cause, and effects
  • Innovative sewage water treatment methods
  • Rapid disinfection methods
  • New biological filters
  • Environmental impact studies
  • Conducting energy efficiency research
  • Improvement of existing cooling and heating systems
  • New systems that increase the efficiency of production
  • New manufacturing processes to reduce your carbon footprint
  • Energy recovery from sludge

Sector trends

The energy crisis

When our planet consists of 71% water, it’s hard to imagine there could ever be a shortage. But since 1985, the amount of water used by the average UK household has increased by 70%. And by 2030, it’s estimated the global gap between water supply and demand could reach 40%.

To tackle the crisis, the UK Government has encouraged the use of water meters. Although almost unheard of in the early 1980s, today over 60% of properties have one. And the technology has been successful in changing consumer behaviours by increasing awareness and action around the importance of water conservation. Average water bills have fallen from a peak of £440 per year in 2014/15 to £426 per year in 2020/21. Additionally, it’s estimated that rolling out a million smart water meters a year could save one billion litres of water every day within 15 years, as well as cut the UK’s emissions by 0.5%.

However, the cost of our utilities is rising. Before the new Energy Price Guarantee was introduced, household energy bills increased by 54% in April 2022 and were due to increase by a further 80% in October. Therefore, more needs to be done to protect our supply.

Climate change

Annual temperatures in the UK are rising. In July 2021, the highest-ever temperature in England was recorded at 40.2°C. And by 2050 the probability of heatwaves could increase five-fold. The biggest concern for rising temperatures is water scarcity caused by drought.

In 2022, most of southern and eastern England had just a tenth of its average July rainfall. After experiencing some of the driest conditions for nearly 90 years, several reservoirs remained well below their normal levels. In the short term, this resulted in a wave of hosepipe bans to control household water usage. Long-term, the Met Office has forecast drier summers in the coming years, which will lead to higher greenhouse gas emissions.

To tackle the crisis several companies are focusing their R&D efforts on how to reduce environmental impact by investigating new methods for recycling water and wastewater treatment.

For example, Propelair created a low water-flush toilet, which uses air to propel 1.5 litres of water per flush into drains, compared to the usual 6-9 litres per flush. While Cascade Water Products has focused on conservation by capturing bathwater and using it to flush the toilet, resulting in a 45% saving on domestic water consumption.


Despite being responsible for collecting and treating sewage and wastewater before it’s released safely back into the environment, many water companies are failing in their duty. In 2021, raw sewage was discharged into rivers in England more than 370,000 times over a period of more than 2.7m hours. According to Government reports, in 2021 the environmental performance of England’s water and sewerage companies was “the worst we have seen for years”. Serious pollution incidents increased to 62 – the highest total since 2013 and an “unacceptable increase” from 44 in 2020.

To tackle the crisis, we are witnessing growing demand for energy-efficient and advanced water treatment technologies.

For example, one of the biggest challenges the industry faces is the UK’s ageing infrastructure, because many pipes date back to the Victorian era. Every day these pipes leak an average of 3bn litres of water. Collectively, water companies have undertaken R&D initiatives that reduced the amount of water leaked from pipes by 7% – the lowest level since records began in the mid-1990s. These projects include:

  • Affinity: using state-of-the-art technology to reduce leaks by 15%.
  • Anglian Water: using thermal imaging drones to pinpoint leaks.
  • SES Water: creating an intelligent water-distribution network in partnership with Vodafone.
  • Northumbrian Water: using satellite technology to help detect leaks.
  • Yorkshire Water: piloting the UK’s largest smart water network.

Excessive water used in food production

Agriculture production is highly dependent on water, and irrigation accounts for 70% of water use worldwide. But it’s not just the excessive use of water that’s a problem – the industry is also a source of pollution as fertiliser, pesticides and livestock effluents are washed into the waterways. As well as reducing the amount of available drinking water and increasing the cost of water treatment, 10% of global disease can be attributed to water.

It’s a problem that is set to only get worse with time. To produce one person’s daily food intake requires 2,000 – 5,000 litres of water. By 2050, 60% more food production is needed to feed the world’s growing population.

To tackle the crisis, technologies that combat water pollution have attracted significant investment – currently accounting for over three-quarters of water-related patents worldwide. Additionally, we’re seeing farmers attempting to reduce the volume of water they use through precision irrigation.

For example, the startup business Ceres uses infrared imaging to determine how much water is in the soil. While Freshboc Farms has adopted ‘indoor farming’ to better control its growing conditions, which has resulted in 95% less water consumption for the same yield as conventional agriculture.

Maintaining this quality requires water companies to overcome several challenges, such as the energy crisis, climate change, wastewater and the excessive use of water in food production.

How can we help?

Maike holds a first class MS in Physics from the University of Leeds. Her experience includes lab work for leading biologists, adapting new experimental techniques and fault finding. Maike enjoys being at the forefront of new technology and seeing the real-world applications.

Maike Schmidt

R&D Analyst

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