The key errors putting life sciences R&D tax relief claims at risk
In this guest blog, BIA member Asma Aslam, Senior Corporate Tax Manager at Frazier & Deeter, shares expert insight into the UK’s evolving R&D tax relief landscape for life sciences companies. The piece explores how recent reforms, including the merged RDEC scheme, are increasing scrutiny and reshaping how subcontracted and overseas R&D is treated. Asma highlights four common pitfalls that can put claims at risk and outlines practical steps research-driven companies can take to stay compliant and protect their innovation runway.
The United Kingdom’s research and development (R&D) tax relief regime remains a significant lifeline for life science companies that are innovating for the future. It enables research intensive organisations to extend their runway and continue advancing critical scientific breakthroughs. Yet it is also one of the most challenging areas of tax compliance. Recent reforms, particularly those affecting subcontracted and overseas activities, have increased scrutiny and raised the risk of enquiries from HM Revenue and Customs. The introduction of the merged RDEC scheme, effective for accounting periods beginning on or after 1 April 2024, has reshaped the landscape by fundamentally altering how subcontracted research and development is treated. These shifts have created a more demanding environment for companies that depend on relief to support their innovation programmes.
As scrutiny continues to intensify, four recurring pitfalls have emerged as the most significant barriers to securing relief in an efficient and compliant way. Understanding these pitfalls, and the steps that can prevent them, is now essential for any research driven company seeking to protect and extend its innovation runway
1. Misclassifying non-qualifying and indirect activities
Many life sciences organisations inadvertently include activities that do not meet the definition of qualifying research and development. Routine assays, screening work, quality assurance (QA) and quality control (QC) checks, standard documentation and general project management often sit alongside genuine scientific work, but they do not resolve scientific or technological uncertainty and therefore cannot be claimed.
However, the Department of Science, Innovation, and Technology guidance recognises that some activities may still qualify even if they do not directly resolve the core uncertainty. Under Paragraph 31 of the Department of Science, Innovation, and Technology guidelines, certain indirect activities may be included when they support eligible research and development. These include scientific information services, administrative support tied directly to the research effort, training of research staff and maintenance of laboratory equipment used in qualifying projects.
To prepare a compliant claim, it is important to distinguish between routine operational tasks, which must be excluded, and legitimate indirect support activities, which may be included when they meet the Paragraph 31 criteria. Making this distinction early improves both the technical narrative and the supporting evidence.
2. Technical narratives that do not meet expectations
A strong technical narrative is central to a compliant claim, yet many fall short because they are written from a commercial perspective rather than a scientific one. HM Revenue and Customs needs to understand the scientific challenge, why the outcome was not predictable and what experimental steps were taken.
The most robust technical narratives are developed with input from scientific teams who understand the uncertainties encountered. Scientists and engineers should clearly describe the problem, the investigative work carried out and what new knowledge was gained. This strengthens eligibility and reduces the likelihood of follow up questions.
3. Subcontracting: One of the most complex areas for life sciences
Subcontracting is a core part of how life sciences companies operate, with regular involvement from contract research organisations, contract development and manufacturing organisations, universities and external laboratories. However, this also makes subcontracted work one of the most complicated areas of research and development tax relief.
Determining who initiated and directed the research, who bore the scientific risk and which elements qualify can be challenging, particularly when responsibilities are shared. The contracting out rules introduced in April 2024 adds further importance to separating scientific activity from regulatory, operational or routine support tasks within blended workstreams.
A compliant claim requires a clear understanding of the contractual relationship, evidence showing who intended or contemplated the research and development and a detailed breakdown of any bundled invoicing to ensure that only qualifying scientific work is included.
4. Overseas expenditure: Increasingly difficult to justify
Life sciences research often depends on clinical trial sites, specialist facilities, patient populations and regulatory frameworks located outside the United Kingdom. However, under the updated rules, overseas expenditure is allowable only where the company can show that the work could not reasonably have been carried out in the United Kingdom for geographical, environmental, social, legal or regulatory reasons.
This is a demanding test. HM Revenue and Customs does not accept justifications based on cost savings, access to expertise or established global processes. As a result, companies must provide clear evidence explaining why the United Kingdom was not a viable option and what specific overseas conditions made the work necessary.
Detailed and well-structured documentation is essential for supporting this category of expenditure.
Positioning life sciences companies for success under evolving R&D rules
Life sciences organisations operate in a complex and fast-moving environment, where rigorous scientific inquiry, regulatory expectations and financial pressures intersect. Research and development tax relief claims must reflect this complexity with clarity and precision. By applying the BEIS guidelines correctly, strengthening scientific narratives, clarifying subcontracting arrangements and rigorously documenting overseas activity, companies can significantly reduce risk and improve the quality and defensibility of their claims.
As the rules continue to evolve and oversight becomes more exacting, this is an important moment for research driven companies to review their approach and ensure their claims are fully aligned with the current expectations of HM Revenue and Customs. A well-prepared claim not only protects access to vital relief but strengthens the foundation of future innovation.
If your organisation would benefit from support grounded in both scientific understanding and tax technical expertise, Frazier & Deeter brings deep sector knowledge to every stage of the R&D process. To discuss your challenges or explore how we can assist with preparing or reviewing your claim, please connect with our team.