By Emma Lewis, Myriad Associates
The healthcare sector is incredibly diverse and packed with innovative thinkers. It’s also a hotbed for research and development, constantly pioneering disruptive new technologies, equipment and treatments.
Health care is at the very heart of people’s lives, with the COVID-19 pandemic throwing a stark spotlight on its importance. We’ve all become armchair scientists over the last two years, knowingly discussing R numbers and viral loads with friends and family. And all the while, the true experts have worked day and night on vaccines and therapeutic solutions against a backdrop of political and economic turmoil. And that’s without ongoing medical research on top – dementia, heart disease and cancer to name just three.
It’s no great surprise therefore that the great strides made in the medical field come with a hefty price tag. According to Statista, in 2020 alone R&D expenditure in the UK pharmaceutical sector amounted to just over £5 billion. This is, unsurprisingly, up from around £4.7 billion the year before.
Preclinical research and clinical development are two areas where R&D expenditure is particularly high. Companies working in the healthcare sector should therefore be aware of the government’s R&D Tax Credits scheme and its cashflow-enhancing potential. This is especially the case in clinical areas where funding can often be hard to come by.
What are R&D Tax Credits?
The UK government has long recognised the benefits of R&D not just to individual companies but also to the wider economy. This is why for the last 20+ years it has offered lucrative R&D Tax Credits towards the costs involved in innovative activities.
Under the scheme, UK companies can reclaim up to 33.35% of their eligible R&D costs back from HMRC, typically as reduction in their Corporation Tax bill. Even loss-making companies can claim, bringing about a 14.5% cash refund. Generous indeed.
The key to unlocking R&D Tax Credits lies in technological or scientific research. If your company has therefore undertaken a project that sought to advance technology and/or science beyond existing knowledge, then R&D Tax Credits are likely to follow. In the case of the healthcare sector, R&D is pretty much a given.
Eligible R&D expenditure in healthcare: Some examples
It would be impossible to put together an exhaustive list of every eligible cost, we’d be here all year. But there are some common types of innovation that are specific to healthcare which we want to highlight for inclusion in an R&D tax relief claim:
Drug development is a particularly common aspect of the pharmaceutical industry that really lends itself to large R&D Tax Credit claims. The development of a therapeutic treatments, methods or drugs- and the testing involved -often involves the experimental manipulation of chemicals where the outcome is uncertain. This is prime R&D territory that can generate rebates of tens of thousands, if not millions, of pounds.
Clinical trials are also a common and crucial aspect of R&D in pharmaceuticals. Costs to include in an R&D Tax Credits claim include payments made to volunteers for clinical trials, as well as further clinical research methods.
Developing and improving products, services or processes
Healthcare companies seeking to make a process more effective or efficient, or to improve the results of an existing product, also be eligible for R&D Tax Credits. This includes improvements like new sugar-free drugs, smart bandages, improved vaccine stability or cutting edge AI technologies.
Innovating new devices
New devices for monitoring patients and administering drugs in particular are being developed all the time. This again is a common driver of research and development, with the costs involved typically eligible for R&D tax relief.
Devising new testing methods (and changing existing ones)
Developing new testing methods, and building solutions that challenge the status quo, are also likely to attract R&D tax relief. Although it’s easy to presume that R&D Tax Credits only apply to the final product and not to the process of manufacturing it, the production process and the activities related to it in fact very much qualify. Again, by using technology to improve the efficacy or efficiency of a testing method, a company may well be entitled to the relief.How can companies in the healthcare sector claim R&D Tax Credits?
The scope of eligible R&D projects and costs that can attract the relief are deliberately very broad. However, it’s well documented that making a claim successfully is extremely difficult.
Not only do you need to know exactly which costs pertinent to your project can be included in a claim, but also which ones aren’t. Over-claiming is likely to attract the wrath of HMRC, whereas under-claiming means leaving money on the table. Furthermore, your claim needs to be supported by a watertight R&D technical report that justifies why the award should be given. This is why so many healthcare companies use the services of a competent R&D tax consultancy.
Once a claim is successful, the resulting cash can be used in any way a company sees fit, with many ploughing it back into R&D work. But one thing’s for sure though – even the smallest claim can easily be worth tens of thousands of pounds of vital extra cash.