How will upcoming changes to R&D tax credits affect UK life sciences ?

How will upcoming changes to R&D tax credits affect UK life sciences ?

The UK life sciences sector is one of the biggest sources of innovation in the UK, but it has come under fire recently for not reaching its full potential.


The Science and Technology Committee, part of the House of Lords, issued a report earlier this month which highlighted how the UK is falling behind on new products and technologies, versus other countries. It raised serious concerns about the industry not reaching its full potential to contribute to a high growth economy.


The targets are ambitious: for the UK to become a “science and tech superpower” by 2030 and to boost R&D spending to 2.4% of GDP.


One measure which the UK government introduced to help boost innovation is R&D tax relief.  This enables pioneering businesses to claim back tax on R&D activity. The government’s scheme has, however, been subject to abuse and fraudulent claims, which has led to some proposed tightening of criteria.


Currently, there is no requirement that R&D activity must be undertaken in the UK for companies to be eligible for R&D tax credits. UK companies that incur R&D expenses overseas may still be eligible for full tax relief.


Yet this won’t be the case for much longer, after a geographical restriction was first announced by the chancellor in last October’s Budget, with the intention of ensuring that the tax reliefs are targeted and focused on UK innovation. This is currently in consultation phase, with a likely implementation in April 2023.


Under the draft legislation, R&D activity must take place within the UK. However, there will be an exemption when environmental or social conditions are not present or replicable in the UK, or where there are regulatory or other legal requirements for R&D to be undertaken elsewhere.


This exemption will be particularly welcomed by the life sciences sector, where undertaking R&D activities overseas may be essential. For example, to gain licensing approvals for new drugs or vaccines, clinical trials may need to be undertaken with patients who live in specific countries. As such, they will still be eligible to claim UK tax relief, which could total millions of pounds in savings.


R&D tax is an ever-evolving niche and having the right people on board, to help navigate these changes and ensure maximum benefits from R&D tax credits for UK life sciences innovation, is essential.


At Leonid, we have an outstanding network of contacts who specialise in R&D tax. If you are looking for that missing piece of expertise, or simply looking for advice, we’d be happy to help.