If recent years have taught us anything, it is that medical research needs to be funded and supported to the fullest extent.
Medical research is often at the cutting edge of R&D, and with many prestigious establishments in the UK, your clients may be shaping the future of healthcare.
However, it is important to be aware of the way that HM Revenue and Customs (HMRC) determines the eligibility of activities in preclinical research and clinical trials, as they both work to resolve different uncertainties.
What is the difference between preclinical research and clinical trials?
The primary difference is a temporal one, with preclinical research coming before the clinical trial and likely laying the foundation for the latter.
Preclinical research encompasses all of the early-stage work that is conducted to discover the applicability and efficacy of new pharmaceuticals.
HMRC breaks down the expenditure for preclinical research as likely including:
- Laboratory consumables, such as reagents and cell-culture materials
- Animal toxicology or efficacy studies
- Technical staff salaries, such as scientists and technicians
- Prototype manufacturing of candidate compounds
- Software directly used for preclinical data analysis
As each of these steps works to resolve scientific and technological uncertainty, they all count as qualifying activities.
For clinical trials, HMRC permits costs directly associated with clinical trials to be incorporated into an R&D tax relief claim.
This includes payment to volunteers, which is processed in a different way from the standard employee cost that would normally constitute an R&D tax relief claim.
The introduction of the Merged Scheme removed much of the capability to consider overseas expenditure when calculating R&D costs.
This applies to clinical trials where only UK-based participants count unless the clinical trial has to be conducted overseas.
For example, a clinical trial studying the impact of a drug combating malaria would likely be conducted in a country with a high prevalence of the disease.
As bringing infected people into the UK, or infecting people in the UK, would be unethical, this overseas clinical trial would be eligible for R&D tax relief considerations.
How to evidence both preclinical research and clinical trials
If both steps of the pharmaceutical development process are to be considered by HMRC, they will need slightly different considerations when it comes to documentation.
This is because of the slight differences in focus placed on the activities by HMRC.
The preclinical phase will have a greater emphasis placed on animal testing and the refining of equipment and chemical compositions to produce stable pharmaceuticals.
For clinical trials, a greater focus must be placed on the administration of the pharmaceutical, including detailing the participant recruitment, site management, and patient monitoring activities.
Both stages need to have demonstrable proof that they adhered to ethical and medical guidelines, as only in doing so could they be considered an advance in the field.
Where necessary, the use of specialist equipment or overseas trials will need to be justified and evidenced by the competent professionals working on the project.
Clients should be advised to document the preclinical research costs and the clinical trial costs separately to avoid confusion.
Seeking the help of a professional R&D tax consultant is always advisable when seeking to support innovative clients.
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