Changes to SME R&D tax credit scheme could harm a thriving sector says BIA

The BioIndustry Association (BIA) is calling for the Government to think again on proposals which could see harmful changes to the way that SMEs are supported through R&D tax credits.
 

The BIA is calling on companies from across the life sciences sector, particularly SMEs, to respond to the Treasury and HMRC consultation to ensure that their voice is heard.
 

The Government is proposing to introduce a cap on the value of cash payments loss-making SMEs can receive through the R&D tax credits scheme. These payments are a valuable source of finance for young companies trying to get from one venture capital fundraise to the next.

A public consultation was launched in March and will close on 24 May, detailing that cash claims would be capped at three-times the PAYE and National Insurance Contributions (NIC) liabilities of a company.
 

The Government says it is exploring options to reduce the impact on ‘genuine companies’. The aim is to prevent fraud, but analysis by the BIA shows the measure will have unintended consequences for life science companies, with between 50% and 60% of genuine SMEs potentially affected. These companies include start-ups and those funding clinical trials in a sector characterised by a high level of R&D outsourcing.
 

Outsourcing R&D to universities, contractors, and other companies is common due to the high setup costs of facilities and the specialised nature of research. Companies that take this outsourcing approach have a high R&D spend and a small PAYE/NIC liability and so they will see their cash payments capped if the proposals are introduced.
 

Many companies will not have the capital or option to change their outsourcing business model and will either need to scale back their R&D or will not be viable at all. If this became government policy, it would be difficult to see how the Government’s stated ambition to raise R&D investment to 2.4% of GDP by 2027 could be achieved.
 

Steve Bates OBE, CEO of the BIA said:

“The UK life sciences sector is an economic success story, creating highly skilled jobs and providing a platform for the UK to be at forefront of innovative science and treatments that will benefit patients now and going into the future.
 

“While the Government’s consultation was done with the best of intentions, if these proposals are introduced, it could put a hard brake on the UK’s rapidly expanding biotech start-up and scale-up community and affect other tech sectors in similar ways. It will also have knock-on effects for hundreds of service and supply SMEs across the UK who will see a loss of business, as well as universities and hospitals that receive significant funding from industry to conduct clinical research.
 

“We are calling on all companies that will be impacted by the Government’s proposals to respond to the public consultation.”
 

END
 

Notes to Editors

• The Treasury and HMRC consultation ‘Preventing abuse of the R&D tax relief for SMEs’ can be found here.
• The 50-60% of SMEs affected figure quoted was calculated by the BIA using a sample of 61 companies based on the proposals in the consultation.
• The BIA’s annual finance report Confident capital: backing UK biotech showed that 2018 was the best year for fundraising in the UK with a record £2.2billion from investors raised in 2018.
• The BIA’s figures from December 2018 to February 2019  shows a strong start to venture capital investment in 2019.
• For further information please contact Jack Fellows, Communications and Media Relations Manager on [email protected] or 02076302196.

About the UK BioIndustry Association (BIA)
Established over 25 years ago at the infancy of biotechnology, the BioIndustry Association (BIA) is the trade association for innovative enterprises involved in UK bioscience. Members include emerging and more established bioscience companies; pharmaceutical companies; academic, research and philanthropic organisations; and service providers to the bioscience sector. The BIA represents the interests of its members to a broad section of stakeholders, from government and regulators to patient groups and the media. Our goal is to secure the UK's position as a global hub and as the best location for innovative research and commercialisation, enabling our world-leading research base to deliver healthcare solutions that can truly make a difference to people's lives. For further information, please go to www.bioindustry.org and twitter.com/BIA_UK