For therapeutic companies, clinical trials are often the largest and most complex component of R&D expenditure. Yet they are also one of the most misunderstood areas when it comes to claiming UK R&D tax reliefs.

With the reformed R&D tax regime applying to companies with accounting periods beginning on or after 1 April 2024, the value of an R&D claim for clinical trials is increasingly determined by three key factors:

  • How clinical trial costs are structured (particularly participant payments).
  • Who controls the R&D activities (which determines who can claim).
  • Where the R&D activities take place (UK vs overseas).

Understanding these areas is critical for founders and CFOs seeking to maximise on available R&D Tax reliefs.

Clinical Trial Costs – A Critical Distinction

One of the most commonly misunderstood areas relates to participant payments.

To qualify for R&D tax relief, payments generally need to be made directly to clinical trial participants. By contrast, payments made to:

  • NHS Trusts
  • Hospitals or GP Practices
  • Clinical trial sites
  • CROs or other third parties

are typically not treated as eligible participant costs for R&D tax purposes.

This means that the routing of payments can materially affect the value of a claim, particularly in larger trials.

For example:

  • A company paying participants directly may be able to maximise the available relief.
  • A company routing participant payments through the NHS or a CRO may find those same costs ineligible.

As a result, clinical trial payment structures should be considered carefully at the outset of a project.

Determining Who Can Claim

Clinical trials are frequently delivered through Contract Research Organisations (CROs). Under the current rules, however, the contractual structure is critical in determining entitlement to relief.

In general, the company entitled to claim is the one that:

  • defines the R&D objectives;
  • bears the technical risk;
  • seeks to resolve the scientific or technological uncertainty.

Under HMRC’s guidance for contracted out R&D, entitlement to claim generally follows the party bearing responsibility for resolving the scientific or technological uncertainty.  In line with this, where a therapeutic company retains control over the R&D activities and the CRO provides supporting services, the therapeutic company will generally be entitled to claim relief.

However, where the CRO is responsible for undertaking the R&D with the therapeutic company having only limited involvement, the CRO may instead be regarded as the party undertaking the R&D.

This distinction makes it essential that CRO agreements are structured carefully and accurately reflect the underlying commercial and scientific reality.

Overseas R&D – Restrictions on Eligibility

Under the new R&D Tax regime, overseas R&D restrictions have become increasingly important for therapeutic companies running global trials.

As a general rule, overseas contracted out R&D activities are not eligible for relief. However, exceptions may apply where the R&D must be undertaken overseas due to factors such as:

  • Access to specific patient populations or other environmental or geographical requirements
  • Legal and regulatory requirements (for example where these requirements may stipulate which country the trials may take place);
  • Inability to replicate the necessary conditions within the UK, etc.

Given the international nature of many clinical trials, companies should ensure that any overseas activity is clearly documented, particularly where allowable exceptions may apply, enabling the therapeutic company to claim.

Practical Recommendations for Therapeutic Companies

To maximise available R&D tax reliefs, founders and CFOs should consider:

  • Retaining control of key R&D decisions
  • Structuring CROs as service providers rather than R&D owners
  • Paying trial participants directly where commercially feasible
  • Carefully assessing and documenting overseas trial requirements
  • Reviewing contracts early to ensure they align with the intended R&D tax position

Small structural differences can have a significant impact on claim eligibility and value.

Summary

The UK remains an attractive environment for therapeutic innovation. The government has made clinical trial acceleration a national priority, with reforms led by the Medicines and Healthcare products Regulatory Agency and the Health Research Authority aimed at streamlining approvals and reducing administrative burden.

For therapeutic companies, this means:

  • Faster progression from research into clinical trials
  • Shorter innovation cycles
  • Potentially earlier access to R&D tax relief

However, under the post 1 April 2024 rules, maximising relief is no longer just about the science itself. Increasingly, it depends on how clinical trials are structured, contracted, and documented from the outset.  With the correct structuring in place, therapeutic companies can significantly improve both the strength and value of their R&D tax claims.