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Pharmaceuticals

R&D tax credits for pharmaceutical companies

Tax credits for pharmaceutical companies can be claimed on the research and development work they carry out in a quest to solve a scientific problem or overcome technological difficulties.

Such activities are particularly relevant to the pharma industry, in the sense of pioneering new medicines and making advancements to sophisticated technologies. As well as drug development companies, any business within the pharmaceutical supply chain may also be eligible.

Regarding the extent of tax incentives for pharmaceutical companies, depending upon their size, profitability, amount of R&D expenditure and when it occurred, they can claim back up to 33.35% of their research and development costs.

What are R&D tax credits?

Research and development tax relief in the pharmaceutical industry is a niche part of the UK tax code that could recoup your company thousands of pounds that can be reinvested into the business.

This industry is among the more obvious sectors for identifying R&D work and therefore with so much innovation taking place, companies should ensure they capitalise fully on the tax relief available – and randd can help greatly in that respect.

The rates of relief that apply to companies depending on the criteria they fulfil can be found here and our guide to calculating the amount of tax credits that can be claimed is on this page.

Two businessmen, dressed in professional attire, are seated together at a desk in an office setting. One of the businessmen is holding a tablet, displaying an R&D-related document for review, while the other attentively observes. They are discussing and analyzing the contents of the digital document, fostering a collaborative and focused atmosphere indicative of a productive business meeting focused on research and development strategies.

What activities qualify as R&D tax incentives for pharmaceutical companies?

Whether it involves developing the latest drugs or creating state-of-the-art medical equipment, the pharma industry is a rich seam for potential R&D tax credits.

Bear in mind the testing procedures that need to be followed to meet regulatory requirements are exhaustive, and that usually a long time elapses, often several years, before a new drug receives market approval once it has progressed through clinical trials.

If you are trying to advance scientific or technological knowledge within the pharmaceutical field, or attempting to resolve an uncertainty, that is likely to qualify as R&D activity. The same applies to finding an innovative solution to a problem and improving an existing pharma product, process or service.

More specifically, the activities could comprise:

  • Adaptation or re-engineering of a manufacturing process
  • Progressing new techniques for drug testing
  • Development of new drug delivery devices
  • Improvement of historic drugs
  • Designing new packaging solutions

What costs qualify as tax credits for pharmaceutical companies?

Of the following various types of expenditure, a proportion in relation to the staff working directly on the pharmaceutical R&D project will qualify for R&D tax credits, likewise any other relevant costs on this list:

  • Wages/salaries
  • Class 1 National Insurance contributions
  • Pension fund contributions
  • Payments to administrative or support staff (e.g. specialist cleaning staff) who work to directly support a project
  • Payments made to subcontractors and external workers
  • Payments made to clinical trial volunteers
  • The cost of materials consumed
  • Light, heat and power costs
  • Data licensing and cloud computing costs
  • Software licence fees
A young female scientist loads a liquid sample into a test tube.

Who is eligible for pharmaceutical R&D tax credits?

As research and development is among the three streamlined routes that qualify under the UK subsidy control regime introduced in 2023, a company in receipt of this replacement form of state aid would be ineligible for R&D tax credits.

Any other company within the pharmaceutical supply chain could be eligible, however. This incorporates businesses involved in manufacturing, packaging, developing new ways of supplying products and equipment or testing new solutions.

A man researcher conducting scientific research in a lab, possibly in the fields of pharmaceuticals, biomedicine, or chemistry.

What R&D tax relief schemes are available for pharmaceutical companies?

SMEs can have up to 27% refunded of their R&D spending that has been incurred since April 2023, when the rates were adjusted by the government, while larger companies are reimbursed 20% of their R&D expenditure under the RDEC scheme.

You can find our full guide to the SME scheme here, including details of which companies qualify, and in-depth information about the RDEC scheme on this page.

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Why many pharmaceutical companies don’t apply for R&D tax credits

A significant proportion of pharmaceutical businesses tend not to be aware the work they conduct can qualify for R&D tax relief.

That is one of the primary reasons why joining forces with an R&D tax credits expert like randd can be so beneficial to a company. Our team of specialists has extensive knowledge and experience in knowing which activities qualify and how to submit a successful claim.

Some business owners are deterred by thinking the process is complicated, but our expertise enables us to conduct a thorough analysis of all your projects, from scientific and technological standpoints, to ensure they qualify for a claim that could recoup you an extremely valuable amount of tax relief.

A scientist working in a chemistry laboratory, examining samples under a microscope.

Expert support claiming R&D tax credits for pharmaceutical companies

If your company has engaged in R&D projects within the pharmaceutical industry, we will be happy to do the hard work when it comes to compiling your tax relief claim.

We believe in managing your expectations, so we will not state definitively from the initial information you provide us with that you have a guaranteed claim because there are various facts that need to be established to ensure they sit within the guidelines.

After a pre-qualifying call with a member of our team, once you have signed up for randd’s services you will be booked in for a consultation within the next couple of weeks at which we will work with you to verify your claim, based on the details you supply.

When all your R&D costings and information has been received, we can calculate the value of your claim and submit it to HMRC.

To find out more about what randd has to offer, call 01332 409 711 or email claim@randduk.com

You can make a claim for the past two accounting years. For example, if your accounting period each year ends on March 31, you would need to submit your R&D tax credit claim for the accounting period April 1 2021 to March 31 2022 before midnight on March 31 2024.

HMRC will make a decision aligned with their Statement of Practice, although there would probably need to be significant mitigating circumstances for such a claim to be successful.

For pharmaceutical companies, the most likely job titles that would be included are R&D Manager, Lead Developer, Engineers, Project Co-ordinators, CAD Engineers, Quality Control and Testing specialists and Cost Accountants, plus members of senior management.

Once your claim has been submitted, you will typically hear back from HMRC within a matter of weeks rather than days or months. The time of year can influence how long it will take HMRC to process your claim, e.g. the Christmas/New Year period could evoke a delay.

UK pharmaceutical companies which are still trading – whether they are profit or loss-making – that have a set of financial accounts, a qualifying R&D spend and are subject to Corporation Tax will qualify.

Activities that qualify for an R&D tax credits claim are overcoming technical challenges; creating and testing prototypes; streamlining processes; trialling new (or substituting) materials; developing bespoke software; trial and error; and industry firsts.