R&D tax credits for the medical and pharmaceutical industry

What costs can you include in your manufacturing R&D claim?

The main categories of qualifying spend that can be claimed are:

• Certain utility costs
• Externally provided workers (agency staff or from other group companies)
• Laboratory consumable 
• Samples and active ingredients to be used in experiments or clinical trials
• Software licenses
• Staff costs (employees and directors)
• Subcontracted R&D
• University payments

Why do we need help when all of our costs are related to R&D?

We often find that highly eligible businesses are claiming for everything. This is where mistakes creep into what should be a low-risk R&D claim. There are specific costs that can be included within your R&D claim so getting the numbers right can be complicated. Quite often costs such as rent or leasing equipment find their way into claim and need to be removed once the numbers are reviewed by HMRC or during a funding due diligence. Having an adviser who can review and support you with your claim preparation is key to avoiding these slip-ups.

However, the bigger issues occur as the business starts to expand and take on more staff. Quite often expansion is supported via grants, which requires careful separation of costs from the internally funded work. One of the top mistakes seen by HMRC is claiming grant funded costs within the SME scheme, and with the advent of the R&D intensive scheme, this splitting of costs becomes even more critical to avoid a costly mistake. 

Alongside expansion will come more routine work and increased focus on commercial activities. Quite often claims in this sector are simply rolled forward from one year to the next with a clearly defined process to pick up on non-qualifying activities. In the past this may have created a claim that would be automatically approved, and businesses mistakenly assumed that this meant HMRC had checked and approved the claim value. With the increased use of random compliance checks, these enquiries from HMRC are unearthing mistakes and errors caused by rolling forward assumptions.

Even though your claims may have been approved for several years, it’s worth setting up an independent review process or bringing in an adviser to support with your claim.

Claiming for client work 

The medical and pharmaceutical sector is unique in the range of partnerships and collaborations that occur to move forward discoveries. This creates issues about who can claim for the work undertaken. Many businesses are so pleased to receive funding that they rush into contractual agreements that are ambiguous or potentially unhelpful when thinking about making an R&D claim. 

Where R&D is funded or subsidised, this impacts on the ability of a company to claim, and in certain circumstances businesses undertaking qualifying work will be excluded from scheme. Therefore, it’s critical to understand these restrictions and how they may change over the coming years before entering contractual arrangements. We can help innovative businesses understand the nuances around claiming for funded work and allow you to plan your cashflow accordingly. 

Other incentives available to manufacturing companies

Businesses in the pharma sector should be looking at all R&D incentives to support you through the manufacturing lifecycle. To find out more about these incentives, please click the links below.

Adding it all up – what’s the benefit?

If your company is an SME and is profit-making, an R&D tax relief claim will decrease the amount of tax you have to pay or you can receive a cash payment. The R&D scheme is changing along with the benefits for SMEs, so the actual benefit will range from 18% to 27% depending on which scheme you fall under, and whether the business is deemed R&D intensive. 

If your company is considered a large company, an R&D claim will increase the profits within the business at a rate of 20% of the qualifying spend. This credit will then translate into a reduction in tax paid or cash back at a rate of 16% of the qualifying spend. Therefore, this scheme can impact measures such as Earnings Before Interest and Taxes (EBIT) as well as providing a welcome cash injection into the business. All non-R&D intensive business will be moving onto this RDEC scheme from 2024 onwards.

How we can help

We're here to fully support you with preparing and claiming R&D tax credits.

Our R&D tax team has extensive experience in preparing pharmaceutical development projects. We take time to listen to your business to understand the goal you’re trying to achieve within your projects. This means we can help you identify a lot more qualifying spend than you might expect. If we believe that you will be eligible to qualify for R&D tax credits, we will then proactively manage your claim. Our approach will not only minimise the time incurred by you, but also maximises the chances of you obtaining a successful claim in the shortest possible timeframe.

Our flexible approach to fees means we are happy to work on a fixed or contingency basis, which will give you complete transparency as to the cash benefit that the R&D tax credit will have to your business. We have a detailed understanding of what it takes to start and grow a practice and appreciate the burden of tax and reporting requirements. Our aim is to relieve this burden by providing tailored advice on tax structuring, planning and compliance.

Get in touch

If you would like to speak to one of our R&D experts to find out more about how we can help, please get in touch via the form below or call +44 (0)20 7710 3330.