The Life Sciences sector contributes over £50 million to the UK economy, with industries such as Pharma and Biotech pushing the boundaries of innovation every day, and stimulating economic growth. UK life sciences firms regularly engage in overseas initiatives and clinical trials, from zoology to ecology and wellbeing, aiming to work towards not only increasing society’s quality of life, but making ground-breaking discoveries that save lives. Innovation within Life Science industries has a long history in the UK, from early discoveries of theories such as evolution by natural selection by Charles Darwin, to the structure of DNA by Francis Crick.
The most recent example that proves just how important Life Sciences are has been the Coronavirus pandemic. Pharmaceutical and Healthcare innovations have been in the spotlight more than ever, and have drawn a large amount of attention to these industries which resulted in the discovery of the Covid Vaccine. The extent of the collaborations that Life Science’s firms went through to bring an end to the pandemic was outstanding, demonstrating just how important it is for these firms to get the funding that they need to continue to change lives. The R&D Tax Credits scheme is just one form of funding that Life Sciences firms need to utilise, allowing them to claim as much as 33p back for every £1 spent on qualifying activity.
Upcoming Changes to Legislation
The introduction of territoriality restrictions to the R&D Tax Credits Scheme comes as a response to a study that found that over half of the R&D spending that companies claim relief for was from overseas countries, with approximately £48bn being claimed for through the R&D Tax Credits Scheme, yet only £26bn was invested in R&D by UK businesses.
“We’re subsidising billions of pounds of R&D that isn’t even happening here in the United Kingdom. That’s unfair on British taxpayers, and it puts us out of step with places like Australia, Canada, Hong Kong, Singapore, Switzerland, and the USA who have all focused their R&D tax reliefs on domestic activity.” – Rishi Sunak
With the Government’s main focus being to make the UK reach net-zero by 2050 and to become a scientific superpower increasing overall R&D investment substantially, R&D is at the heart of it’s goals which will need reliable and accessible funding behind it that is not going overseas.
The territoriality restrictions will however ensure that the funds put aside for the R&D Tax Credits scheme are actually being rewarded to businesses who conduct R&D inside the UK. At first, this came as an alarming announcement to many businesses within the life sciences sectors due to the nature of their innovations often requiring overseas R&D, but the new restrictions will still allow businesses to claim tax relief for costs such as data, software and cloud computing and even clinical trial volunteers payments that are all sourced overseas.
What benefits do the changes have for Life Sciences Firms?
By allowing tax relief on payments that are made to overseas clinical trial volunteers, the UK will not be deterring any Life Sciences firms that are looking for a good rate of Research and Development Tax Relief, R&D intensive businesses should therefore feel reassured by restrictions as they are not as limiting as first believed, there were concerns due to the worry that many firms undertake R&D outside of the UK, and are often at the heart of the projects to gain better understandings and access the right equipment, studies and staff.
The new restrictions mean that firms that pay Corporation Tax within the UK will still be able to write off their cost of Research and Development which is conducted outside of the UK as long as it is carried out directly, but please note that this will not be applicable for some countries such as the U.S and Australia.
What life sciences innovations can secure R&D funding?
Life Sciences are some of the most innovative industries in the world, making groundbreaking discoveries and paving the way for our modern world. There are endless possibilities for the types of projects that would be eligible to receive R&D Tax Credits, but to simplify we have listed some examples:
- Creating or developing a new production line or facility
- Creating or developing artificial intelligence (AI) and new digital techniques
- Repurposing products that already exist
- Improving scaling processes to meet customer demands
- Developing 3D printing for new products
- Creating new VR software that assists with medical training.
- Creating or developing new pharmaceuticals
There are thousands of Life Sciences firms that have claimed under the R&D Tax Credits scheme from day one, but there are also many that are still underclaiming. The average benefit for companies that are in this industry is more than £700K, yet many firms are not claiming the right amounts.
This may be due to many factors such as overly conscious estimations of time that is spent on R&D projects due to high industry standards, not evaluating all possible cost categories, and missing out on including Qualifying Indirect Activity.
To ensure that you are not underclaiming, it is always optimal to use a specialist such as our team at Green Jellyfish who have extensive knowledge of processing R&D claims, and are highly experienced which ensures you are not missing out.