Can the healthcare sector claim R&D tax credits?

Before we look at whether the healthcare sector can claim R&D tax credits, first, let’s define what the healthcare sector is: How big is it, how much does it contribute to the UK economy and what types of companies operate within it?

The healthcare sector: a quick breakdown

The healthcare sector comprises any business that either supplies, manufactures or delivers medical services, medical equipment, drugs and medical insurance, or provides healthcare to patients who need it. 

In terms of its size, the total healthcare expenditure in the UK in 2022 was £283 billion, equating to over £4,000 per person and accounting for 12.4% of the gross domestic product (GDP). 

According to a Forbes report, the health sector witnessed 3,400 new business registrations in just one quarter of 2023, making it the best sector for new business growth, and the industry is only set to grow bigger, as our population ages and more people need healthcare support, products and services.

Now we understand what the healthcare sector is, let’s find out if companies within the sector can claim R&D tax credits…

What are R&D tax credits? 

The R&D tax credit scheme is a government-backed incentive designed to encourage innovation and growth, increase internal spending and boost our economy.

The scheme offers UK companies up to 18.6% of their R&D expenditure back, either as a cash lump sum or a reduction in their Corporation Tax bill (if the company made a profit).

If you have a project that is pushing the boundaries of science and technology, beyond what’s currently out there, then you could be eligible for R&D tax credits.

Do healthcare companies claim R&D tax credits?

There’s a general assumption that because the healthcare sector isn’t directly involved in scientific research (pharmaceutical companies aside) companies within the sector don’t qualify for R&D tax credits. 

However, pretty much every aspect of healthcare is involved in some sort of scientific or technological research and development. Companies within the healthcare industry are continuously looking for breakthroughs to try and prevent ill health, diagnose medical conditions quicker, produce more effective treatments, and provide better outcomes and faster recovery for people suffering from poor health. 

Some healthcare R&D project examples that would qualify for R&D tax credits might include developing software to help medical staff keep patients’ records and medical history, building devices and equipment for surgical and non-surgical applications, chemical testing for new drugs, or even clinical trials and prototype testing to determine how successful the R&D project was.

This type of continuous research and development within the sector makes most healthcare companies the perfect candidates for R&D tax credits. Take UK pharmaceutical companies for instance. They spend, on average, around £5 billion on R&D, annually, making it one of the largest R&D-focused industries in the UK.

What expenses can healthcare companies claim, under the R&D tax credit scheme?

Healthcare companies can claim R&D tax credits for R&D expenses such as:

• Costs–like wages, pension contributions and NICs–for staff who were directly or indirectly involved in the R&D project (these could be clinicians, lab technicians, researchers, developers, project managers etc..) 
• Materials used to develop the innovation or build design models or prototypes needed to prove the concept
• Software licenses that were used to resolve a technical challenge, or verify that the challenge was successfully resolved
• Lab space and equipment needed to develop or test the innovation 
• Payments to third parties or subcontractors that were used to solve uncertainties during the project 
• Cost of wearables, like lab coats and activity trackers
• Utilities like lighting, power and heating

How can healthcare companies claim R&D tax credits?

Before you submit a claim for R&D tax credits, it’s worth making sure that your project and its costs, will be eligible under the R&D tax credit scheme: 

Are you eligible for R&D tax credits?

If you're doing any of the below, then there’s a good chance you’re the right candidate for an R&D tax credit claim: 

• Are you trying to improve what’s already available in the healthcare sector? 
• Are you undertaking some form of risk to bring better alternatives to people within the healthcare sector? 
• Are you investing in highly skilled technicians and scientists to complete your R&D project? 
• Are there uncertainties and unknown elements within the project? 

If you’re still unsure whether you qualify or not, why not contact our R&D tax credit claim experts? With over 16 years of experience dealing with R&D tax credit claims, we’ll be able to tell you if your project is eligible for R&D tax credits, what costs are permitted and how much you might be able to claim.  

Once you’re certain you do qualify for R&D tax credits, then you can begin your application. You can use Tax Cloud, the UK's first self-service R&D tax credit portal. 

Tax Cloud walks you through the whole R&D tax claim process, telling you what information you need and what documents to upload. Then, once the application is complete, an R&D tax expert will review it to make sure you’re claiming the maximum amount of R&D tax credits available to you and submit it to HMRC on your behalf. 

Book a demo with the team, or contact us for more information. 

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud