UK R&D tax relief remains highly supportive of life sciences following BIA campaign

The UK’s R&D tax relief regime will continue to support innovative life sciences and biotech companies to conduct essential clinical trials and some pre-clinical work overseas following the publication of new draft legislation. However, some concerns remain, with further clarifications and guidance needed, says the sector’s trade association.

The UK BioIndustry Association (BIA) welcomes the publication of the draft Finance Bill yesterday (20 July 2022), which legislates for changes to the UK’s internationally competitive R&D tax relief regime.

The legislation, yet to be approved by Parliament, follows the announcement by the former Chancellor, Rishi Sunak MP, that the regime would be amended to end payments for R&D conducted overseas to “refocus” it on innovation in the UK. BIA responded quickly to highlight to the Chancellor and his officials that the development of new medicines is an internationally-collaborative endeavour and companies must conduct R&D in multiple countries by necessity.

BIA and its Finance and Tax Advisory Committee has worked with Treasury and HMRC officials to help them understand the necessity of international R&D in the sector, resulting in vital exemptions to the new restrictions. Companies will continue to be able to claim R&D tax relief on overseas activity where the conditions required for that R&D are:

  1. not present in the UK
  2. are present in the location in which the R&D is undertaken, and
  3. when it would be wholly unreasonable for the company to replicate the conditions in the UK

Cost and availability of workers will however not be valid reasons to not conduct R&D in the UK.

The exemption is welcome, but the legislation leaves areas of ambiguity, which will require further explanation in HMRC guidance, and some life science and biotech companies may still see their claims limited as a result of the changes.  This is needed soon as companies will be entering contracts that will extend into the period in which the new rules will come into effect. 

Steve Bates OBE, CEO of BIA, said: “With approximately 33% of our members’ R&D investment occurring outside the UK on activity that cannot be done here for a variety of essential reasons, the former Chancellor’s announcement could have seriously impeded the development of new medicines for patients and the continued growth of our world-leading life sciences sector.

“The positive and pragmatic approach shows the Government’s commitment to supporting our sector. We look forward to engaging in further dialogue to secure clarity and further support for our members, especially those that will have their claims limited as a result of these changes.

“We are also delighted to see further details of how the R&D tax relief regime will be made more internationally competitive and fit for innovation in the 21st Century by including data and cloud computing costs. This has been a long-term campaign objective for the BIA, it is excellent to see it come to fruition.”

“These outcomes demonstrate the value of a strong and member-led national trade association with high-trust links to all levels of Government.”

Melissa Strange, Vice-Chair of the BIA’s Finance and Tax Advisory Committee, said: “I welcome the collaborate approach taken by Treasury and HMRC to listen to the concerns of the members of the BIA, which are representative of the wider life science SMEs, and the desire of Treasury and HMRC to protect the ability to claim tax credits for qualifying R&D, where activities take place both inside and outside of the UK for genuine reasons. It’s important now that the legislation is clear to enable companies to benefit from this important incentive, without undue administrative burden, with the long term aim to bring about a benefit both to patients globally and the UK economy.”

Richard Turner, Senior Managing Partner at FTI Consulting, said: “We see the motivation for these changes, but it is important that they do not have unintended consequences that put UK life sciences at a competitive disadvantage.  We know that aspects of the regime are under review and this presents a great opportunity to design an incentive regime that is best in class and makes the UK the location of choice for innovation and scale-up.”

BIA is hosting a webinar featuring HMRC to explain the new legislation and answer questions. Members and non-members can register on the BIA website.

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