BIA sends message to UK chancellor on R&D tax credits

The BioIndustry Association (BIA) has asked new UK Chancellor Rachel Reeves for a nuanced approach to R&D tax credits in the upcoming budget, saying that the life sciences should not be penalised due to bad actors in other sectors.

Reeves has already signalled that she is considering changes to various tax breaks that are suspected of doing more to raise company profits and line the pockets of owners than contributing to the nation's economic growth. A similar stance was taken by previous Chancellor Jeremy Hunt before Labour won the general election.

Earlier this year, the National Audit Office identified 341 tax breaks designed to lift economic growth, but concluded that HMRC does not "monitor or evaluate reliefs closely enough to understand if they cost too much or achieve their intended economic impacts."

BIA called this morning for a "sector-targeted" R&D tax relief policy that takes into account what it acknowledges has been "extensive abuse and fraud" in the current system, which is intended to support small and medium-sized enterprises (SMEs).

The main problem, according to the trade body, is that the process has been hijacked by 'no win, no fee' tax agents making claims on behalf of companies that are not conducting genuine R&D. It is proposing an economic study be carried out to understand how R&D tax relief can be targeted towards innovative growth sectors of the economy, like life sciences, whilst closing the door on abuse.

"We are calling on the Treasury to evaluate the impact of R&D tax relief on a sector-by-sector basis, starting with the life sciences industry, to identify how taxpayers' money can be better focused on growing the economy by supporting innovative industries of the future," said BIA's chief executive, Steve Bates.

"With clear thinking, the Chancellor can put the UK on track once again to have a globally competitive R&D tax relief scheme that attracts foreign investment for small and scaling UK companies," he added.

Hunt had proposed a major overhaul of the system, including a cut in the deduction rate to 86% and the credit rate to 10% – from 130% and 14.5%, respectively – alongside an increase in the rate of the separate R&D expenditure credit (RDEC) from 13% to 20%.

At the time, the drop in the repayment rate to 10% was seen as being particularly damaging to innovative start-ups, as these vehicles are a vital source of financing, although, Hunt argued that the net effect on SMEs would be immaterial.

BIA said today that the reliance of life sciences SMEs on successive venture capital rounds – involving investors who can invest anywhere in the world – must be taken into account alongside the highly intensive focus on R&D and decade-plus timelines to bring a new medicine through development.

It also pointed out that studies commissioned by HMRC showed that R&D tax reliefs deliver £3 of private R&D investment for every £1 of tax foregone, which "is already a positive return on investment."

Reeves' approach will only become clear after the new government's budget is laid out formally on 30th October.