| David Cobb, John Moore and Rosie Smith at Deloitte investigate government initiatives to encourage research and development and the potential benefits available to UK companies as a result
As of April 2000, the UK Government has been providing tax breaks in the form of additional tax deductions in an attempt to encourage companies to perform more R&D. Since the introduction of the R&D tax relief, HM Revenue & Customs (HMRC) has committed increasing resources in order to ensure that companies’ claims are evaluated and dealt with in a manner that is designed to encourage more claims to be made.
In order to claim R&D tax relief, it is essential to demonstrate that you are conducting eligible R&D activity. If asked, most people would associate R&D with bench-top laboratories, white coats and so-called ‘blue-sky’ thinking. Surprisingly, this narrow view of R&D is also shared by many companies within the life sciences sectors. In our experience, sub-optimal R&D tax relief claims are commonly being made because of a lack of complete understanding of the applicability of R&D for tax purposes. This trend is not limited to the size of the company or area of expertise; it is affecting small biotech as much as global pharma. Are you making the most of the opportunities available?
The main reason for sub-optimal R&D tax relief claims is that the most recent definition, giving the criteria for assessing eligible work, has not been applied. For instance, not all levels of activity within drug development phases (rather than just research phases) have been considered. We have found that, eligible activities often occur within Phase IV clinical trials and the key to identifying these is a full understanding of the definition of R&D for tax purposes. In addition, engineering innovation and development, including associated trial costs occurring within the manufacturing centres of the company, is often not recognised as R&D in its own right.
Irrespective of the cause, the outcome is the same: many companies exclude a large slice of eligible project expenditure and miss out on the potential benefit. We hope that this article will encourage you to look again at the level of potentially eligible activity which occurs within your laboratories and clinical trial activities and, if applicable, reassess the level of technical and scientific development and process improvements which occur within the manufacturing process. |
