R&D tax relief for life sciences and pharmaceutical companies
Life sciences and pharmaceutical work can involve qualifying R&D, from discovery and formulation through to clinical development and manufacturing scale-up. Scientific complexity or regulatory approval does not make expenditure eligible by itself. The project must seek an advance in overall science or technology and address uncertainty that a competent professional could not readily resolve.
Lexmore helps UK companies identify qualifying projects, establish the supporting evidence and prepare an R&D tax relief claim that reflects the work actually undertaken.
When can life sciences and pharmaceuticals work qualify?
The starting point is the scientific or technological advance being sought. It must be an advance in the overall knowledge or capability of the relevant field, not simply something new to the company.
The company must identify the scientific or technological uncertainties encountered and explain why their resolution was not readily available or deducible to a competent professional. Qualifying activities directly contribute to resolving those uncertainties, together with certain qualifying indirect activities.
A commercially unsuccessful or abandoned project can still contain qualifying R&D. Success is not the test. The purpose of the work, the state of knowledge when it began and the method used to address the uncertainty are what matter.
Projects that may contain qualifying R&D
These examples indicate where qualifying work may arise. They do not mean that every activity or cost within the project qualifies.
Drug discovery and pre-clinical development
Projects may seek advances in target identification, mechanism of action, candidate selection, delivery, bioavailability, toxicity or efficacy. Routine screening using established methods will not necessarily qualify unless it directly contributes to resolving a qualifying scientific or technological uncertainty.
Formulation and delivery systems
Work on stability, solubility, release profile, dosage form, excipient interaction or drug-delivery technology may qualify where the required outcome could not be achieved through readily available knowledge or standard formulation practice.
Biotechnology and biologics
Potentially relevant projects include work involving cell lines, proteins, antibodies, vaccines, gene or cell therapies, fermentation and other biological systems. The claim must identify the advance and uncertainties rather than rely on the novelty of the field.
Clinical development
Clinical development can contain qualifying R&D where work directly contributes to resolving scientific or technological uncertainty. Routine patient recruitment, regulatory administration, marketing or data collection does not qualify merely because it forms part of a clinical programme.
Diagnostics and medical technology
Projects involving diagnostic assays, biomarkers, laboratory systems, medical devices or health technologies may qualify where they seek an advance and require non-routine work to resolve scientific or technological uncertainty.
Process development and manufacturing scale-up
Moving from laboratory production to repeatable commercial manufacture can involve uncertainty in yield, purity, stability, sterility, contamination control, process interaction or reproducibility. Routine transfer to a standard production process is not R&D.
Bioinformatics and computational life sciences
Software, modelling and data-led work may qualify where it seeks an advance in science or technology. Applying an existing tool or algorithm to a new dataset or commercial problem will not normally be enough without a qualifying advance and uncertainty.
What normally does not qualify?
- Routine quality control or batch-release testing.
- Standard validation using established methods.
- Regulatory submissions, administration or compliance work.
- Market research, commercial strategy or product promotion.
- Routine data collection with no qualifying scientific purpose.
- Minor formulation or process changes that are readily deducible.
- Production and distribution after uncertainty has been resolved.
- Patent application, legal and intellectual-property registration work.
Work required by a regulator is not automatically excluded, but it must still satisfy the R&D definition. The purpose and substance of the activity are more important than its label.
What evidence supports a claim?
The claim should connect the scientific objective, work performed and expenditure. Relevant evidence can include:
- Literature reviews and the scientific or technological baseline.
- Project proposals, hypotheses and development plans.
- The identity and experience of competent professionals.
- Laboratory notebooks, protocols and experimental records.
- Assay, formulation, stability and analytical data.
- Design histories and controlled revisions.
- Records of unsuccessful compounds, methods or approaches.
- Clinical and statistical analysis related to the uncertainty.
- Project codes, staff time records and cost-allocation methods.
- Contracts with research organisations, laboratories, universities and collaborators.
Confidential or unpublished knowledge can be relevant, but the company must still explain the advance sought relative to overall knowledge or capability in the field.
Which costs may be included?
Clinical trial expenditure must be analysed rather than included as a single total. A cost arising within a trial is not automatically qualifying. The activity, cost category, contractual position and connection to the uncertainty must be established.
Production and distribution costs, capital expenditure, land and the cost of patents or trademarks are not qualifying R&D expenditure under these reliefs.
See the qualifying R&D costs guideContract research, grants and overseas work
Life sciences projects frequently involve contract research organisations, universities, laboratories, group companies and overseas facilities. Under the rules applying to accounting periods beginning on or after 1 April 2024, entitlement to contracted-out R&D depends in part on who decided to undertake the R&D and the nature of the arrangements between the parties.
Restrictions can also apply to contractor and externally provided worker activity undertaken overseas, subject to limited exceptions. Grant funding does not provide a complete answer by itself. Contracts and the way the project was initiated, directed and delivered should be reviewed before expenditure is included.
How Lexmore helps
1. Assess the technical position
We speak with the people who understand the work and test each project against the tax definition of R&D. If we do not believe the work meets the test, we say so before recommending a claim.
2. Establish the evidence
We identify the baseline, advance, uncertainties, competent professionals and supporting records, including any gaps that should be addressed before submission.
3. Review the expenditure
We map costs to qualifying activities, consider the relevant scheme and document the basis of any apportionment and external arrangements.
4. Prepare the claim
We prepare the technical and financial support and the Additional Information Form, then coordinate the Corporation Tax return position with the company or its accountant.
5. Provide enquiry support
If HMRC opens an enquiry, we manage correspondence and defend the technical and financial basis of the claim. We cannot determine HMRC's decision or represent clients at tribunal.
If a claim is reduced or denied, the company may have to repay relief and HMRC may charge interest and, in some circumstances, penalties. Read about R&D enquiry support.
Which R&D scheme applies?
For accounting periods beginning on or after 1 April 2024, qualifying companies generally claim under the merged R&D expenditure credit scheme. Enhanced R&D Intensive Support may instead be available to a qualifying loss-making, R&D-intensive SME.
Earlier periods fall under the previous SME and R&D expenditure credit rules. The accounting period, company position, contracting arrangements and any connected companies must be considered before treatment can be confirmed.
Find out which R&D scheme applies.From R&D to Patent Box
Life sciences and pharmaceutical companies may also need to consider Patent Box. In addition to certain patents, the regime can extend to specified rights relating to medicinal, veterinary and plant products, including some supplementary protection certificates and marketing or data-protection rights.
Holding a right is not enough by itself. The company must meet the relevant development and ownership conditions, identify qualifying relevant IP profits and make a valid election. Patent Box applies an effective 10% Corporation Tax rate to those qualifying profits, not to revenue or all company profits.
Explore Patent Box tax relief.R&D claim deadlines
For a period of account lasting 18 months or less, the claim deadline is generally 24 months from the final day of that period. A different 42-month rule applies where the period of account is longer than 18 months.
Some companies must also submit a claim notification within six months after the end of the period of account. Exemptions and exceptions apply, so previous claims and filing dates must be checked.
See how and when to make an R&D claim.Frequently asked questions
Do clinical trials qualify for R&D tax relief?
They can contain qualifying R&D where activities directly contribute to resolving scientific or technological uncertainty. Not every phase, activity or cost within a clinical programme qualifies. Routine administration, recruitment and regulatory work must be considered separately.
Can payments to clinical trial participants be included?
Qualifying payments made to subjects in return for participating in a clinical trial can be an eligible cost category. The payment and the trial must meet the relevant statutory definitions.
Does an unsuccessful experiment or trial prevent a claim?
No. A project can contain qualifying R&D even if it fails to achieve the intended advance. The company must still show that it sought a qualifying advance and attempted to resolve qualifying uncertainty.
Can work performed by a contract research organisation qualify?
Potentially. Entitlement depends on the accounting period, contracts, who decided to undertake the R&D, where activities occurred and the nature of the underlying costs. A CRO invoice should not be included without that analysis.
Can we claim R&D tax relief and Patent Box?
Potentially. R&D relief applies to qualifying expenditure, while Patent Box applies to qualifying relevant IP profits. The company must meet each regime's separate conditions.
Discuss your life sciences and pharmaceuticals projects
We will help establish which projects and activities meet the tax definition, what evidence supports them and whether preparing a claim is appropriate. If we do not believe the work meets the test, we will tell you before recommending a claim.