27TH JULY, 2021

Can the Healthcare Sector Claim R&D Tax Credits?

The healthcare sector is one where you’re very likely to find research and development (R&D), with great costs associated with creating new products, improving existing products or developing novel processes. The sector works towards the greater good, improving lives through launching new drugs or pioneering some truly incredible technology. The industry has the potential to change lives on a scale few other sectors can hope for. Our global pandemic has only highlighted the necessary costs in developing life-saving drugs; over the past year, it seems we’ve all become experts on the process of research and development in the medical industry.

The great strides made in the medical industry come with a high price tag though. Expenditure on R&D in the sector is hefty, with around £4.8 billion of R&D spend in the pharmaceutical industry in 2019 and employing over 29,000 people. It is by far the industry with the most R&D in the UK.

Most of the R&D costs are spent in clinical development and preclinical research, which are eligible costs for R&D tax credits. Companies working in the healthcare industry should be aware of this incentive as it offers excellent opportunities for cashflow, especially where funding may be hard to come by.

What are R&D tax credits?

This government-backed scheme offers UK companies up to 33.35% of their R&D spend back in either a cash repayment or as a reduction in Corporation Tax. If your company is loss-making, you can claim up to 14.5% as a cash refund. The incentive was designed to encourage R&D in the UK, increasing internal spending and boosting our economy.

If your company has a project which seeks to advance science and technology beyond the state of the art, then you can likely claim R&D tax credits. In the case of the healthcare industry, R&D is almost a given. However, it’s always worth contacting an R&D tax specialist to confirm eligibility and ensure that your claim is maximised.

Examples of qualifying expenditure in healthcare

This list is by no means exhaustive, but will give you a sense of which costs in the healthcare sector are eligible for R&D tax relief:

  • Drug discovery is one of the largest aspects of the pharmaceutical industry where R&D tax credits are claimed. The development of a drug or treatment and its chemical research and further testing is a prime example of R&D in the pharmaceutical industry. Our experience with pharmaceutical companies suggests that most of the qualifying activity for Pharmaceutical R&D Tax Credits occurs in the clinical trials of Phase I-III.
     
  • Devices in the medical field often show evidence of R&D. This includes devices for administering drugs or monitoring patients.
     
  • Testing Methods that are being developed are equally eligible for R&D Tax Credits. Although there is a presumption that R&D Tax Credits only apply to the final product and not to its manufacturing process, the production and associated activity very much qualify. By using technology to improve the efficiency or efficacy of a testing method, a company can be entitled to R&D Tax Credits.
     
  • Development and improvement of products, processes or services are often forgotten as aspects of R&D but can yield great results. For example, companies that seek to make a process more efficient, effective or to improve the results of an existing product may qualify for pharmaceutical R&D Tax Credits. This includes improvements like sterility, speed of process or fitness for market (i.e. a sugar-free drug).
     
  • Clinical trials were specifically given the position of qualifying expenditure, as they did not fall into any of the previously outlined categories but were crucial to R&D. The costs of paying trial volunteers can be claimed as R&D expenditure.

How can I claim?

Firstly, ask yourself if your company is advancing science and technology, as deemed by a professional in the field. If the answer is yes, you will likely be able to claim back on the costs associated with that project. To get a sense of what you can claim, we have developed an R&D tax credit calculator, which will estimate how much you could be entitled to from HMRC. The calculator is powered by Myriad Associates, the experts behind Tax Cloud.

To ensure that your claim is both entirely eligible and maximised on all fronts, we recommend speaking with a specialist R&D tax firm whose experience in the field allows them to identify eligible projects and costs immediately.

At Tax Cloud, we guide you through the process, allowing you to take the lead while we review all your work to be sure that it will pass through HMRC’s vigorous checks. We review your information, can recognise missed opportunities, and even submit the claim on your behalf. Get in touch now by calling 020 7360 4437, or using our contact form, for professional, friendly advice.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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Myriad Associates helps businesses maximise tax reliefs and secure R&D grant funds. We specialise in R&D Tax Credits, Video Games Tax Relief, Innovate UK grants, Horizons 2020 grants, and Research and Development Capital Allowance Claims.

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Meet some of the team behind Tax Cloud

Barrie Dowsett Barrie Dowsett ACMA CGMA Chief Executive Officer
Lisa Waller Lisa Waller CTA, ACCA R&D Tax Manager
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Rabia Mohammad Rabia Mohammad Corporate Tax Associate