Official Statistics

Background information and quality report: Research and Development Tax Credits

Updated 28 September 2023

1. Contact

• Organisation unit - Knowledge, Analysis, and Intelligence (KAI)
• Name - S Austin and M Rowe-Brown
• Function - Statistics Producers, Direct Business Taxes
• Email - ct.statistics@hmrc.gov.uk

2. Background information

2.1 What are Research and Development (R&D) Tax Credits?

Research and Development (R&D) tax credits are a tax relief designed to encourage greater R&D spending, leading in turn to greater investment in innovation. They work by either reducing a company’s liability to corporation tax or by making a payment of a credit to the company, with both scenarios being linked to the company’s qualifying R&D expenditure. A company can only claim R&D tax credits if it is liable for Corporation Tax.

There are currently two schemes for claiming relief:

• Small or Medium-sized Enterprise (SME) scheme
• Research and Development Expenditure Credits (RDEC)

There are two historical schemes that are no longer in use:

• Large Company (LC) scheme
• Vaccine Research Relief (VRR)

R&D tax credits were introduced for small or medium-sized enterprises (SMEs) in 2000 and extended to large companies from 2002 with the LC scheme. The RDEC scheme (also known as ‘Above-the-Line’) was introduced in April 2013 for large companies. Companies could choose the RDEC scheme or the old LC scheme for expenditure incurred until 31 March 2016, after which the LC scheme was no longer available. Companies may have multiple accounting periods in a single financial year or qualify for multiple R&D schemes. As a result, companies may make more than one claim in the same financial year. For example, SMEs may claim under the SME scheme and also as a sub-contractor under the RDEC scheme. For more information about the R&D tax reliefs and who can claim them, please see the sections below and the guidance.

2.2 Small and Medium-sized Enterprise (SME) scheme

The SME R&D scheme was introduced in 2000. It allows companies to claim a deduction from CT liability based on their enhanced R&D expenditure or to claim a payable tax credit if the company is loss making. The relief rates have changed several times since the scheme was introduced. The payable credit rate increased from 11% to 14.5% in April 2014 and the enhancement rate rose from 125% to 130% in April 2015. At the 2022 Autumn Statement a decrease of both rates was announced. The enhancement rate has now been decreased to 86% and the credit rate to 10%. Further changes were announced in the Spring 2023 fiscal event which maintained the 14.5% credit rate for certain companies. These changes take effect on expenditure incurred from 1 April 2023. Due to the lag in R&D data, the impacts of these changes are not yet reflected in the statistics publication.

Under the normal EU definition, a SME is a company or organisation with fewer than 250 employees and either of the following:

• an annual turnover not exceeding €50 million
• a balance sheet not exceeding €43 million

This definition was used in deciding eligibility for R&D tax credits until 1 August 2008. Since then, a wider definition of SME has been used – but only in the context of R&D tax credits. This new definition, still in force, states:

A SME is a company or organisation with fewer than 500 employees and either of the following:

• an annual turnover not exceeding €100 million
• a balance sheet not exceeding €86 million

However, a company may not be considered a SME if it is part of a larger enterprise that would fail these tests if taken as a whole.

2.3 Research and Development Expenditure Credit (RDEC)

The Research and Development Expenditure Credit (RDEC) was introduced in 2013. The credit is applied to the company’s qualifying R&D expenditure and is taxable. Depending on whether the company is profit or loss making, it may be used to discharge the company’s corporation tax liability or result in a cash payment. The RDEC rate has increased several times since the scheme was introduced, from 11% to 12% in January 2018 and to 13% in April 2020. A further increase of the RDEC rate, to 20%, was announced in the 2022 Autumn Statement.This change takes effect on expenditure incurred from 1 April 2023. Due to the lag in R&D data, the impact of this change is not yet reflected in the statistics publication.

2.4 Large Company (LC) scheme

The Large Company (LC) scheme was introduced in 2002 and allowed companies to claim a deduction from CT liability based on their enhanced R&D expenditure. Large companies could not claim payable credits under this scheme. The LC scheme was discontinued in April 2016.

2.5 Vaccine Research Relief (VRR)

Vaccines Research Relief (VRR) was an additional ‘top-up’ relief for vaccines research which was introduced in 2003. Previously, loss-making SMEs could surrender enhanced VRR deductions for a cash payment, like the SME R&D tax credit. However, VRR for SMEs was reduced to 20% of qualifying expenditure from 1 April 2011 and was then removed for expenditure incurred on or after 1 April 2012. Large companies claiming VRR could only use the deduction option; they could not claim payable credits for VRR. VRR is not available on expenditure incurred on or after 1 April 2017. VRR claims are included in the statistical tables but are not shown on the charts in the commentary document because of the small amounts involved.

3. Statistical presentation

3.1 Data description

This is an annual National Statistics publication produced by HM Revenue and Customs (HMRC). It provides information on the number of companies claiming Research and Development (R&D) tax credits and its associated cost to the Exchequer. It contains a commentary and statistical tables relating to these schemes for claiming relief:

• Small or Medium-sized Enterprise (SME) scheme
• Research and Development Expenditure Credits (RDEC)
• Large Company (LC) scheme
• Vaccine Research Relief (VRR)

The publication also provides information on the industrial and geographical breakdown of R&D claims and the distribution of companies by the size of the claim. These breakdowns (tables RD5 to RD8) are classified as official statistics rather than National Statistics. More detailed breakdowns of sector and geographical information are provided in the supplementary tables, RDS1 to RDS3.

All figures are based on returns received on or before 31 May 2023. Grossing factors have been applied to the latest year’s figures to account for claims not yet received by HMRC. Figures for the latest two years are considered provisional and are subject to revision in next year’s publication.

3.2 Classification system

The publication provides breakdowns of the tax relief claims by scheme, by region and by industrial sector.

Table RD5 provides the regional distribution of R&D claims. Geographical location is based on the registered office address of the company making the claim. A company may operate at different locations throughout the UK, but its tax return will be made on behalf of the whole company and linked to its registered office address. A geographical breakdown will therefore show all the company’s expenditure and tax liability as originating at the location of the registered office, which may not reflect the location of the company’s actual R&D activities.

Table RD6 provides the sectoral distribution of R&D Claims. Industrial sector is categorised using the UK Standard Industrial Classification (SIC) 2007. Companies have been assigned to a SIC 2007 sector based on information from the ONS’s Inter-Departmental Business Register (IDBR) survey where there was a unique match, or otherwise from information provided by companies to Companies House. However, there are several caveats to this information. For example, a company may have changed its primary business since first registration; or, although its primary business is correct (for example, telecommunications), the company’s current research is in a different sector (for example, materials science). For companies within a group, the industry sector might be recorded as that of its holding company.

3.3 Sector coverage

Companies claiming R&D tax credits cover all main sectors in the UK Standard Industrial Classification (SIC) 2007.

3.4 Statistical concepts and definitions

Financial year

The statistics are aggregated into financial years. A financial year stretches from 1 April until 31 March the following calendar year.

Receipts basis

The number of claims paid on a receipts basis allocates the claims to the year the payment was made. This is based on the date that the claim was received.

Accruals basis

The number of claims paid on an accruals basis allocates the claims to the year the accounting period ended. There is a lag in the data as companies have a year after the end of their accounting period to file their Corporation Tax return, and a further year to make, withdraw or amend a claim.

3.5 Statistical unit

The units in these statistics are the number of companies claiming R&D tax credits, the associated cost to the Exchequer, and the value of qualifying R&D expenditure used to make these claims.

3.6 Statistical population

The statistical population includes all companies who have submitted a company tax return (CT600) claiming an R&D tax credit.

3.7 Reference area

The geographic region covered by the data is the United Kingdom (UK).

3.8 Time coverage

The statistics in each table of the publication cover different time periods:

• RD1 to RD4 and RD8 cover the financial years ending March 2001 to March 2022
• RD5 to RD7 cover the financial years ending March 2021 and March 2022

4. Statistical processing

4.1 Source data

The main administrative data used to compile National Statistics on R&D tax credits are derived from information provided by companies on the Company Tax return (CT600), with modifications or additions made in subsequent amended returns and assessments.

The CT return collects information on the enhanced level of R&D expenditure and the amount of any R&D payable tax credit. From April 2021, companies claiming RDEC, or SME payable tax credit must fill in the CT600L supplementary pages which provide further details of how the claimed amount has been calculated.

Management information is used for quality assurance purposes and to assist with classifying claims.

4.2 Frequency of data collection

The data for R&D tax credits are extracted annually. This year’s statistics are based on claims received up to 31 May 2023.

4.3 Data collection

The data source for this publication is created from a combination of CT return and CT assessment data, extracted from HMRC’s IT systems for electronic filing (E-filing) and corporation tax (COTAX). In the data source each record represents one claim and contains R&D data fields from the e-filed CT return data set, the COTAX CT return data set and/or the CT assessment data set. Logic is applied to the new data source to determine the best data set to use for each claim.

4.4 Data validation

Initial checks carried out on the data include:

• correction of calculation errors in the tax return
• automated checks which take place when loading data into the analytical database

Once the claims data have been extracted from the analytical database:

• outliers are identified and investigated
• any large changes in figures from one statistical release to the next are also investigated

4.5 Data compilation

Claims are identified using the company’s unique taxpayer reference and accounting period end-date.

Classification of R&D tax credit claims

Each claim is classified, for example as a SME payable credit, deduction or RDEC claim, based on the information provided on the CT600 return. HMRC management information is used to assist with classifying claims.

SMEs claiming a tax credit may have claimed under the SME scheme or through RDEC if they were working as a subcontractor for a large company. For claims submitted from April 2021 onwards, information from the CT600L supplementary pages is used to identify claims by SMEs in the RDEC scheme.

Rounding and totals

Throughout this release, all numbers have been rounded to the nearest 5, as well as financial amounts to the nearest £5 million. This can lead to components not summing to the totals shown.

5. Quality Management

5.1 Quality assurance

All official statistics produced by KAI, must meet the standards in the Code of Practice for Statistics produced by the UK Statistics Authority and all analysts adhere to best practice as set out in the ‘Quality’ pillar.

Analytical Quality Assurance describes the arrangements and procedures put in place to ensure analytical outputs are error free and fit-for-purpose. It is an essential part of KAI’s way of working as the complexity of our work and the speed at which we are asked to provide advice means there is a high risk of error which can have serious consequences on KAI’s and HMRC’s reputation, decisions, and sometimes even on peoples’ lives.

Every piece of analysis is unique, and as a result there is no single quality assurance (QA) checklist that contains all the QA tasks needed for every project. Nonetheless, analysts in KAI use a checklist which summarises the key QA tasks, and is used as a starting point for teams when they are considering what QA actions to undertake.

Teams amend and adapt it as they see fit, to take account of the level of risk associated with their analysis, and the different QA tasks that are relevant to the work.

At the start of a project, during the planning stage, analysts and managers make a risk-based decision on what level of QA is required.

Analysts and managers construct a plan for all the QA tasks that will need to be completed, along with documentation on how each of those tasks are to be carried out and turn this list into a QA checklist specific to the project.

Analysts carry out the QA tasks, update the checklist, and pass onto the Senior Responsible Officer for review and eventual sign off.

5.2 Quality assessment

The QA for this project adhered to the framework described in ‘4.1 Quality assurance’ and the specific procedures undertaken were as follows:

Stage 1 – Specifying the question

Up to date documentation was agreed with stakeholders setting out outputs needed and by when; how the outputs will be used; and all the parameters required for the analysis.

Stage 2 – Developing the methodology

The methodology was agreed and developed in collaboration with our stakeholders and others with relevant expertise, ensuring it was fit for purpose and would deliver the required outputs.

Stage 3 – Building and populating a model/piece of code

Stage 3 consists of the following steps:

• analysis was produced using the appropriate software and in line with good practice guidance
• data inputs were checked to ensure they were fit-for-purpose by reviewing available documentation and, where possible, through direct contact with data suppliers
• QA of the input data was carried out
• the analysis was audited by someone other than the lead analyst – checking code and methodology

Stage 4 – Running and testing the model/code

Stage 4 consists of the following:

• results were compared with those produced in previous years and differences were understood and they were assessed as genuine
• results were explainable and in line with expectations

Stage 5 – Drafting the final output

The final stage includes the following:

• checks were completed to ensure internal consistency (for example, totals equal the sum of the components)
• the final outputs were independently proofread and checked

6. Relevance

6.1 User needs

These statistics may be of interest to anyone seeking the latest data about the uptake of R&D tax credits, their cost, and the nature of the companies claiming them. They may also be of interest to organisations such as think-tanks, universities, and other similar institutions, such as, for comparing the relative effects of similar incentives operating in other countries.

6.2 User satisfaction

HMRC is committed to providing impartial quality statistics which meet our users’ needs. We encourage our users to engage with us so that we can improve our National and Official Statistics and identify gaps in the statistics that we produce.

If you would like to comment on these statistics or have any enquiries, please use the statistical contacts named at the beginning of the report.

6.3 Completeness

Although the data are the best available at the time, claims for R&D tax credits can be made up to 2 years after the end of an accounting period, so some claims for the latest year may be received after the statistics have been released. Figures for the latest year are provisional and have been grossed to include estimates for claims not yet received.

The statistics capture all claims submitted to HMRC on the CT600 Company Tax Return. They exclude a small number of claims that come in a non-standard format.

This release provides information on research and development activities for which R&D tax credits have been claimed. Not all expenditure on R&D in the UK is used to claim the tax credit, so these statistics are not a comprehensive account of all R&D activity in the UK.

7. Accuracy and reliability

7.1 Overall accuracy

This analysis is based on administrative data, and accuracy is addressed by eliminating non-sampling errors as much as possible through adherence to the quality assurance framework.

7.2 Sampling error

As no sampling is necessary, sampling error is not an issue.

7.3 Non-sampling error

Coverage error

All figures are based on returns received on or before 31 May 2023. Grossing factors have been applied to the latest year’s figures to account for claims not yet received by HMRC. The grossing factors are derived by looking at the completeness of the underlying data in previous years. As the completeness is not always the same every year, there will be some inherent uncertainty in the grossed-up estimates; this is particularly the case for RDEC.

Measurement error

Companies may make errors entering their information onto the CT600 Company Tax Return form, whether this is done manually or electronically. The data are subsequently entered onto the COTAX system either manually or by electronic transmission. This is another point at which data may be altered due to human or software errors. There is a risk that errors involving large amounts may distort the overall statistics. To mitigate this, checks are carried out on large outliers.

Processing error

It is possible that errors exist in the programming code used to analyse the data and produce the statistics. This risk is reduced through developing a good understanding of the complexities of R&D schemes, and thoroughly reviewing and testing the programs that are used.

7.4 Data revision

Data revision – policy

The figures presented in this release will be subject to revision, particularly for the most recent two years as some claims are still to be received by HMRC. Also, some claims that have already been submitted may be amended.

Revisions to the published figures are not routinely made until the following year’s release. Typically, the largest revisions are to the most recent year’s figures, reflecting claims received after the cut-off date.

Data revision – practice

This year we have revised the data for the financial years ending in March 2020 and March 2021.

7.5 Seasonal adjustment

Seasonal adjustment is not applicable for this analysis.

8. Timeliness and punctuality

8.1 Timeliness

These statistics have been published in September 2023. They cover R&D tax credit claims relating to companies’ accounting periods ending on or before 31 March 2022.

8.2 Punctuality

In accordance with the Code of Practice for official statistics, the exact date of publication will be given not less than one calendar month before publication on both the Schedule of updates for HMRC’s statistics and the Research and statistics calendar of GOV.UK.

Any delays to the publication date will be announced on the HMRC National Statistics website.

The full publication calendar can be found on both the Schedule of updates for HMRC’s statistics and the Research and statistics calendar of GOV.UK.

9. Coherence and comparability

9.1 Geographical comparability

This analysis is presented for a single region – the United Kingdom. The ONS has discontinued usage of Nomenclature of Territorial Units for Statistics (NUTS) and it has been superseded by International Territorial Level (ITL). Most of the classification is identical, so regional comparisons over time is still appropriate. The only variation identified is that of very small regions, such as the Channel Islands, are no longer level 1 regions.

9.2 Comparability over time

Substantial revisions were made in the 2018 publication to correct for missing returns. At that time the data was revised back to the year ending March 2015. Earlier years may not be complete and therefore not suitable for direct comparisons. The size of the revision was estimated to lead to an additional £550 million in claims being included in the year ending March 2015. As a result, the statistics for each relief are comparable from the year ending in March 2015.

9.3 Coherence – cross domain

The Office for National Statistics (ONS) publishes several additional National Statistics on R&D in the UK, including the Business Enterprise Research and Development (BERD) survey and Gross Domestic Expenditure on Research and Development. It is important to note that there are differences in what the HMRC and BERD statistics are measuring:

• BERD measures expenditure on carried out in the UK, whereas HMRC measures the R&D expenditure that is used to claim R&D tax credits, including overseas expenditure which may qualify for R&D tax credits
• while both the ONS and HMRC definitions of R&D expenditure are based on the criteria in the OECD Frascati manual, there are differences in the detailed definitions for expenditure included in BERD and expenditure that qualifies for R&D tax credits

For more information on the BERD survey, please see the quality and methodology information published by the ONS. Additionally, the Scottish Government and the Northern Ireland Statistics and Research Agency publish National Statistics on R&D activity in Scotland and Northern Ireland, including:

• the Business Enterprise Research and Development (Scotland)
• Gross Expenditure on Research and Development (Scotland) and
• the Research & Development Survey (Northern Ireland)

For access to these and other related publications on R&D activity in the UK, please visit the announcements page.

Coherence – sub-annual and annual statistics

All statistics are presented as annual outputs. No coherence issues exist.

9.4 Coherence – internal

Rounding of numbers may cause some minor internal coherence issues as the figures within a table may not sum to the total displayed. Effort has been made to ensure totals between tables remain consistent where appropriate.

10. Accessibility and clarity

10.1 News release

There haven’t been any press releases linked to this data over the past year.

10.2 Publication

The tables and associated commentary are published on the Research and Development Tax Credits statistics webpage of GOV.UK.

Tables are published in the OpenDocument format, and the associated commentary in HTML.

Both documents comply with the accessibility regulations set out in the Public Sector Bodies (Websites and Mobile Applications) (No. 2) Accessibility Regulations 2018.

Further information can be found in HMRC’s accessible documents policy.

10.3 Online databases

This analysis is not used in any online databases.

10.4 Micro-data access

Access to this data is not possible in micro-data form, due to HMRC’s responsibilities around maintaining confidentiality of taxpayer information.

10.5 Other

There aren’t any other dissemination formats available for this analysis.

10.6 Documentation on methodology

All up-to-date information on the methodology is found on this webpage.

10.7 Quality documentation

All official statistics produced by KAI, must meet the standards in the Code of Practice for Statistics produced by the UK Statistics Authority and all analysts adhere to best practice as set out in the ‘Quality’ pillar.

Information about quality procedures for this analysis can be found in section 5 of this document.

11. Cost and burden

Because all the necessary data for these statistics are obtained from administrative data sources, there is no additional burden on companies or HMRC tax inspectors to provide information.

It is estimated to take about 100 days FTE to produce the annual analysis and publication.

12. Confidentiality

12.1 Confidentiality – policy

HMRC has a legal duty to maintain the confidentiality of taxpayer information.

Section 18(1) of the Commissioners for Revenue and Customs Act 2005 (CRCA) sets out our duty of confidentiality.

This analysis complies with this requirement.

12.2 Confidentiality – data treatment

The statistics in these tables are presented at an aggregate level so identification of individual companies is minimised, but potentially still possible. Where potential risks exist, statistical disclosure control (SDC) is applied to cells within tables. SDC is the application of methods to ensure confidential data is not disclosed to parties who don’t have authority to access it.

SDC modifies data so that the risk of data subjects being identified is within acceptable limits while making the data as useful as possible.

Disclosure in this analysis is avoided by applying rules that prevent categories of data containing:

• small numbers of contributors
• small numbers of contributors which are very dominant

If a cell within a table is determined to be disclosive, its contents are suppressed either by removing the data or combining categories.

Further information on anonymisation and data confidentiality best practice can be found on the Government Statistical Service’s website.