Whether you are a Biotech, a Pharmaceutical, a Medical Device company or a Clinical Research Organisation, you really should be budgeting for your Research and Development Tax Relief claims.
There were originally two R&D Tax Relief schemes, the SME scheme and the Large Company Scheme. As a former European Finance leader for a growing CRO, even when we were a small company, we were only ever eligible to claim under the Large Company Scheme because the R&D was subcontracted to the company, and only then if the contractor was a large or overseas company.
The major downfall of the large company scheme was that a loss-making company could only ever enhance losses and therefore delay the payment of tax, however on 1 April 2013, the Research and Development Expenditure Credit was born, and so was the ability to convert some R&D spend in to cash regardless of whether or not the company was profitable in that financial year.
The large company scheme expired on 31 March 2016 and since then large companies and CROs have had to claim under RDEC.
Now, I have to admit, if you’ve never claimed before, budgeting for your first claim is a bit like sticking your finger in the air to see which way the wind is blowing, but once you’ve claimed, budgeting for future years should become a lot easier and may even influence some of your riskier decisions.
How? You may ask
Well, regardless of which side of the industry your business sits, there are a number of rules of thumb that can be applied:
1. you have to have a project, it has a defined start point and a defined end point;
2. your project has to advance science or technology, it doesn’t have to be new, it can be a significant enhancement of something existing, or a repurposing of an existing solution for a completely new use;
3. you have to overcome scientific or technological uncertainty whilst attempting to achieve the advance, you also don’t have to succeed, a failed project is normally enough to demonstrate that an advance could not be achieved because the uncertainties were too great; and
4. a competent professional operating in the field cannot readily deduce the solution, either on his own or through normal discussion with peers.
These are generally very well defined in the industry, as a guideline Drug Discovery, PreClinical Development and Clinical Development (including feasibility trials) are all within the spectrum for claiming R&D Tax Relief, it is only in very rare cases within these trials that there is no attempt to overcome scientific uncertainty.
Post Launch Phase IV trials are generally excluded from eligibility because normally by this point the scientific uncertainty has been resolved, the product licensed and any work being performed is more associated with identifying unknown side effects as a result of interactions with other medicines, looking into patient subgroups or longer-term markers. The results of such studies might kick start a new project, where R&D is once again at the forefront of the activities.
The research and development associated with the naming and the branding of the drug, is not arrived at through a process of scientific or technological evaluation and likewise the market research associated with identifying whether or not there is a viable market and ultimately financial payback for the end product doesn’t resolve any scientific uncertainties and is in effect the commercialization of the R&D.
That being said the development of a complex piece of software to forecast the financial returns from a particular drug, might be eligible for a claim!
Having established that you have some eligible projects, we’ll have a look at the costs that you can be claiming for in the next article, which will enhance your budgeting capability.
If in the meantime you’d like to discuss whether R&D Tax Relief could be beneficial for your business, please give Simon Bulteel a call on 01424 225345, or visit our website www.coodentaxconsulting.co.uk. After 10 years in practice as an accountant and 6 years in Clinical Research, Simon spent 14 months at a World Championship winning Motorsport team before leaving to work full time in Cooden Tax Consulting in September 2013.
