Almost all countries fund research and development to some extent. They do so because governments around the world know that lowering the cost of R&D for businesses encourages private investment, which helps to drive productivity and boost economic performance. R&D efforts can also help deliver the solutions to some of society’s biggest challenges, such as curing deadly diseases or cutting carbon emissions.
But there are different ways to fund R&D. Some governments prefer to offer incentives through tax relief, and others will choose more targeted public investments, (many will opt for a mix of both). Of the different options available, recent data from the OECD (the Organisation for Economic Co-operation and Development) revealed that “R&D tax incentives continue to outpace other forms of government support for R&D in most countries.”
In the past, the UK has used OECD data as justification for the “generosity” of its R&D tax relief scheme. For this article, we’ve looked at how the UK’s R&D incentives really compare to the support offered by the rest of the world.
Where does the UK rank on R&D tax support?
So, where does the UK sit? According to the OECD data, which includes OECD countries and other major economies, the UK ranks third for government tax support for business R&D as a percentage of GDP, at 0.30%. The table below shows the top ten countries from the report:
Government tax support for business R&D as a percentage of GDP (2023)
| Ranking | Country | Tax support |
|---|
| 1 | Portugal | 0.39% |
| 2 | Iceland | 0.38% |
| 3 | UK | 0.30% |
| 4 | France | 0.28% |
| 5 | China | 0.24% |
| 6 | Belgium | 0.23% |
| 7 | Ireland | 0.22% |
| 8 | South Korea | 0.19% |
| 9 | Canada | 0.19% |
| 10 | Austria | 0.17% |
The UK’s spending on R&D as a percentage of GDP is regularly cited in parliamentary papers (for example, Research & development spending). The previous government went as far as to say that “the UK has one of the most generous R&D tax relief systems in the world”, although the Federation of Small Businesses (FSB) pointed out that this wasn’t down to the generosity of the scheme; it was simply because of the large quantity of companies that had applied for R&D tax relief in the UK.
A more accurate measure of generosity is the OECD’s Implied tax subsidy rates on R&D expenditures, which shows the percentage of R&D costs that governments around the world effectively cover through tax incentives. An analysis from Tax Foundation Europe ranked the UK as 14th based on its implied subsidy rate for large firms:
| Ranking | Country | Rate for profitable large firms |
|---|
| 1 | Portugal | 39% |
| 2 | France | 36% |
| 3 | Poland | 36% |
| 4 | Spain | 33% |
| 5 | Lithuania | 31% |
| 6 | Iceland | 30% |
| 7 | Slovak Republic | 28% |
| 8 | Ireland | 27% |
| 9 | Greece | 26% |
| 10 | Slovenia | 26% |
| 11 | Czech Republic | 24% |
| 12 | Germany | 22% |
| 13 | Norway | 22% |
| 14 | United Kingdom | 18% |
Digging into the original OECD data, the UK is ranked 13th based on its implied subsidy rate for loss-making large firms, and 15th for both profitable and loss-making SMEs.
The UK’s implied tax subsidy rates are also behind those of China, which offers 32% for profitable SMEs and large firms, 25% for loss-making SMEs, and 24% for loss-making large firms.
So, while the UK might rank highly for its R&D tax incentives as a percentage of GDP, it still has some distance to go before it can call itself one of the most generous systems in the world.
What R&D tax incentives are available in the UK?
HMRC offers several types of R&D tax incentives in the form of R&D Tax Credits. These include:
For account periods starting before 1 April 2024:
For accounting periods starting from 1 April 2024:
Other R&D tax incentives include:
Do R&D tax incentives help to stimulate private investment?
In 2019, HMRC estimated that every £1 spent on the SME scheme incentivises between £0.75 and £1.28 of additional R&D funded by private companies. In 2020, they estimated that every £1 spent on the RDEC scheme incentivises between £2.40 and £2.70.
In fact, one of the reasons for the launch of the new merged R&D scheme (which also provides an ‘above-the-line’ expenditure credit like RDEC) was because it was considered to be more successful at helping to stimulate private investment.
How does HMRC evaluate the effectiveness of R&D tax incentives in the UK?
The UK Government uses several methods to evaluate the effectiveness of R&D tax incentives, most of which are outlined in its Approach to research and development tax reliefs report.
Generally, they look at overall take-up along with measuring private investment in relation to R&D expenditure, but they also scrutinise errors and fraud levels (which have been a powerful driver of reform in recent years).
Some evaluation is conducted externally through HMRC Datalab research projects, but HMRC also has a wealth of internal data that it can use to help review R&D tax incentives. Every year HMRC publishes official R&D Tax Credits & Patent Box statistics, which include their cost, the number and value of claims, as well as regional and industrial breakdowns.
As well as this, HMRC regularly opens consultations to seek the opinions from the private sector on the effectiveness of R&D tax incentives. For example, in March 2025 the UK Government opened a consultation into the use of advance clearances in R&D tax reliefs to reduce error and fraud.
Leyton UK has a close working relationship with HMRC, meaning that we will also present our views in consultations through written submissions, helping to improve the overall fairness and administration of tax reliefs.
How Leyton can help
Not sure which R&D tax incentive is right for your innovative project?
Don’t worry, we can help. Our team is built up of highly qualified tax experts and technical consultants who are here to simplify the process of claiming tax relief and unlock the full savings available for your business.
Get in touch to find out more.
