The Innovation Impacts of R&D Tax Credits in the UK

Weixi Liu; Marc Cowling; Ning Zhang

doi:10.1111/radm.70008

The Innovation Impacts of R&D Tax Credits in the UK

Weixi Liu
, Marc Cowling
, Ning Zhang

Oxford Brookes Business School
University of the West of England

Research output: Contribution to journal › Article › peer-review

1 Citation (SciVal)

Abstract

Strategic managers of SMEs face a number of barriers to successful R&D, and the high cost of funding R&D projects due to their technological uncertainty is a critical one. To alleviate this problem, the UK government introduced R&D tax credits for firms with innovation projects that are scientifically or technologically uncertain in 2000, and this scheme has remained in place ever since. In this paper, we use a large longitudinal SME data set for the UK to test whether R&D tax credits have been successful in stimulating more innovation, whether they have impacted more on process or product innovation, and if they have promoted radical as opposed to incremental innovation. Our findings show that R&D tax credits are associated with product and process innovation, and also radical innovation of both types. It was also the case that the R&D tax credit effect took time to manifest itself in superior innovation outcomes. In general, the positive impact of R&D tax credits in the UK on firm-level innovation is most apparent when firms also leverage external advice specifically related to innovation and strategy.

Original language	English
Pages (from-to)	55-70
Number of pages	16
Journal	R and D Management
Volume	56
Issue number	1
Early online date	18 Jul 2025
DOIs	https://doi.org/10.1111/radm.70008
Publication status	Published - 31 Jan 2026

Data Availability Statement

The data that support the findings of this study are available in UK DataService at https://ukdataserv ice.ac.uk. These data were derived fromthe following resources available in the public domain: LongitudinalSmall Business Survey, 2015–2023. https:// beta.ukdataserv ice.ac.uk/datacatalogue/studies/study?id=7973

Funding

This work was supported by Economic and Social Research Council. Marc Cowling and Weixi Liu would like to acknowledge the support by UK Research and Innovation (UKRI) and UK Economic and Social Research Council (ESRC), for the project “Understanding how constraints on access to finance and under-investment impact on productivity growth in smaller firms” (ES/W010259/1).

Funders	Funder number
UK Research and Innovation
Economic and Social Research Council	ES/W010259/1

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 9 Industry, Innovation, and Infrastructure

Keywords

R&D
SMEs
cost of capital
innovation
tax credits

ASJC Scopus subject areas

Business and International Management
General Business,Management and Accounting
Strategy and Management
Management of Technology and Innovation

Access to Document

10.1111/radm.70008Licence: CC BY

Cite this

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The Innovation Impacts of R&D Tax Credits in the UK

Abstract

Data Availability Statement

Funding

UN SDGs

Keywords

ASJC Scopus subject areas

Access to Document

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