The argument over creative industries R&D tax relief continues
The inclusion of the creative industries within the government’s industrial strategy demonstrated a welcome recognition that the key growth sectors of the future are not only to be found in the hard sciences.
Last summer’s creative industries sector plan announced a range of creative research-related interventions – a new UKRI creative industries R&D strategy (now published), £100m in research investment, more support for commercialisation – and the suggestions of movement on the issue of R&D tax relief.
This has long been a vexed question for businesses working in creative enterprise – a lack of clarity about what counted as R&D for the purposes of seeking tax deductions. While international standards have long made it clear that creative work undertaken to increase knowledge (whether of culture, society, or otherwise) should be considered as R&D, the system used by HMRC has always been much more restrictive.
The sector plan promised revised guidance, if not an overhaul:
“This will clarify that, where a project in the creative sector seeks an advance in science or technology, arts activities that directly contribute to the advance by resolving scientific or technological uncertainties are within the definition of R&D for the reliefs, and their qualifying costs, such as salaries, can qualify for relief. This guidance will be published in 2025 and will clarify that eligible interdisciplinary innovation can be supported by R&D tax relief.”
The guidance in fact appeared in February 2026, but was in line with the promised clarification – for R&D to be present, in the tax authorities’ view, a company must be seeking an advance in science or technology, and must be doing this by way of resolving scientific or technological uncertainties.
Importantly, the guidance came with worked examples: one of a studio developing a system to preview garments on digital models, and another featuring a car-racing simulation game for mobile phones. For each, the qualifying and non-qualifying activities are broken down in a way that makes clear which parts of each project count, and which do not. For example, expenditure on “aesthetic or stylistic decisions” will not.
Not good enough
A new report from University of the Arts London (UAL) welcomes the new guidance but contends that the issues with the underlying definition of R&D for tax purposes remain unresolved (the report also makes a separate set of recommendations about closing the creative research funding gap, arguing that the UK’s funding landscape remains “heavily skewed” towards STEM).
For the authors, there is still a “persistent and damaging ambiguity” about what counts and what does not, especially for those creative industry firms working at the intersection of STEM and the arts. Further clarification about the current rules is not the solution, it is argued – what’s needed is a change in the definition itself:
“The OECD’s definition of R&D is clear that innovation encompasses creative and systematic work across all fields of knowledge, including the humanities and social sciences. The UK’s current approach falls short of this standard and places it out of step with comparable economies that take a broader view such as Germany or South Korea.”
Unlikely to change
It appears unlikely that we will see further action from the government of the sort proposed in the report.
The House of Commons Business and Trade Committee’s inquiry into investment in the UK economy saw the committee recommend widening eligibility criteria for R&D tax credits “so as to include Arts, Humanities, and Social Sciences research within its scope.”
The government delivered its official response last week, saying that it
“considers the definition of R&D for tax purposes is fit for purpose in meeting the policy objectives of the relief.”
By way of rationale, it flags the updated HMRC guidance, the other creative industry tax reliefs on offer (worth £2.4 billion in 2023–24), and the fact that businesses in the arts, entertainment and recreation industries received £125m of R&D tax relief in 2023–24.
Recently published figures for 2024–25 put the cost of R&D tax relief to arts, entertainment or recreation industry businesses at £130m in that year, a fraction of the outlay on relief to businesses in R&D-intensive industries such as manufacturing (£2.2bn), professional, scientific and technical (£2.0bn) and ICT (£1.6bn).
Readers may note that “arts, entertainment and recreation industries” is a much broader slice of the economy than the creative industries alone. A similar point is made by UAL in its report:
“While HMRC publishes annual R&D tax credit statistics by sector, the classification system used does not capture creative businesses as a distinct category, meaning the scale of creative R&D tax relief claims, and the impact of any changes to eligibility, cannot be properly tracked or evaluated. Government should ensure that data on R&D activity in the creative industries is collected and published in a way that makes this visible.”
While an overhaul of the definition of R&D for tax purposes appears off the table for now, changes to data publication would allow for the issue to be better understood, which might prove an important first step ahead of longer-term change.
UAL’s report also makes various pragmatic recommendations for targeted help in understanding and using R&D tax relied: plain language guidance, proactive outreach, and capacity-building support. This, at least, would make a material difference, especially for the many SMEs working in creative fields.