At its simplest (University) research is understood as original investigation undertaken in order to gain knowledge and understanding for the public benefit. Universities are required to ensure only appropriate activity is classified as research in their statistical returns and such activity provides public benefit (and therefore exempt from corporation tax).
However, deciding whether an activity is research (or not) is often not straightforward, as the context of the activity must be considered together with the content. The Frascati Manual (the internationally recognised methodology for collecting and using R&D statistics) provides the founding definition, and is also used for the purpose of various statutory returns. Definitions for the REF2021 provide clarification on specific points of eligibility, such as exclusion of routine testing (which does not generate new insights or advance the research discipline) and teaching materials that do not contain research. As such there are three important definitions of research:
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- Frascati definition of research
- Definition of Research for REF2021
- Guidance on charitable status for Higher Education Institutions (HEIs)
Frascati defines research as:
"Research and experimental development (R&D) comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of the stock of knowledge to devise new applications"
R&D is a term covering three activities:
- Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view.
- Applied research is also original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific practical aim or objective.
- Experimental development is systematic work, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed.
This definition is used for the purpose of various statutory returns.
For the purposes of the Research Excellence Framework (REF), research is defined as a process of investigation leading to new insights, effectively shared. It includes work of direct relevance to the needs of commerce, industry, and to the public and voluntary sectors; scholarship; the invention and generation of ideas, images, performances, and artefacts including design, where these lead to new or substantially improved insights; and the use of existing knowledge in experimental development to produce new or substantially improved materials, devices, products and processes, including design and construction. It excludes routine testing and routine analysis of materials, components and processes such as for the maintenance of national standards, as distinct from the development of new analytical techniques. It also excludes the development of teaching materials that do not embody original research.
The REF provides benchmarking information and informs the allocation of research funding by Research England and further information can be found on the College's Research Excellence Framework (REF) pages.
Imperial is an exempt charity (not a registered charity) by virtue of the Exempt Charities Order 1962 and Schedule 3 to the Charities Act 2011. As such, it must comply with the principles of charity law, and must fulfil certain criteria in order for its research activity to be classed as charitable (irrespective of funding source) and for such activity to remain tax exempt.
The Office for Students is the principal regulator of HEIs as charities, and responsible for monitoring compliance with charity law obligations. The Charity Commission, provides guidance to HEIs on what constitutes research. For research to be charitable:
- the research must further the charitable purposes of the HEI and be conducted for the public benefit;
- there are two aspects of public benefit:
- the ‘benefit aspect’. The purpose must be beneficial and any detriment or harm that results from the purpose must not outweigh the benefit
- the ‘public aspect’. The purpose must benefit the public, or a sufficient section of the public and any personal benefits must be incidental to achieving charitable purposes, that is, reasonable, necessary and in the interests of the charity.
In its simplist form, in applying the ‘public benefit’ test, research cannot be regarded as a charitable activity if its results are not disseminated either through publication or further application, or if their dissemination is so limited that there is no public benefit. Such activity may be liable to VAT.
How to manage research income
Definitions of research have implications for how research funding is managed, and counted in statutory returns which are used for external reporting on research volume and to inform allocations for additional income from Research England. Research income is governed by Research England, the Higher Education Statistics Agency (HESA), the Charities Act 2011 and tax law, and the College is subject to regular audit by its regulatory bodies. The consequences of incorrectly stating activity and income as research could include the College becoming liable for tax, being ineligible to apply for funding from certain research organisations, and subsequent reputational damage, and it is therefore important for all research income to be correctly classified in College systems.
For research income to be compliant with Financial Reporting Standards to HESA, activity must:
- Meet the definitions of research above, namely the Frascati and REF definitions, and satisfy the conditions of charitable status
- Have agreed ‘project scope’ agreed with the funder at the outset
- Have 'performance related conditions' attached to the funding.
For further information on how to correctly classify research income in the College’s systems, please see the following guidance document:
Further information
REF2021: Guidance on submission
Office for Students: Regulatory advice for exempt charities
Charity Commission guidance: Research by Higher Education Institutions