Maximising R&D Tax Relief and Grant Funding for Life Sciences Innovation

The life sciences sector continues to lead the way in scientific and medical breakthroughs, with research and development (R&D) forming the bedrock of innovation. Biotechnology, in particular, stands out for its ability to merge biology, technology, and engineering to tackle challenges across medicine, agriculture, industry, and the environment.

Unsurprisingly, biotech remains one of the top three sectors claiming R&D tax relief in the UK. But beyond tax relief, a wide range of grant funding opportunities are available to support innovation—especially for small and medium-sized enterprises (SMEs). Here’s a roundup of key programmes and how they interact with R&D tax incentives.

Can You Claim R&D Tax Credits and Grant Funding?

Navigating the relationship between grant funding and R&D tax relief is important for maximising innovation support. Historically, receiving a grant could limit a company’s ability to claim certain types of R&D tax relief, particularly under the SME scheme. However, changes introduced in April 2024 have reshaped the landscape, offering more flexibility and broader eligibility—especially for SMEs and R&D-intensive businesses. Below we break down how these changes affect claim strategies and potential funding outcomes.

Before April 2024

Under the previous schemes for SME companies (which included R&D tax relief, SME, and Research & Development Expenditure Credit [RDEC]):

• SME R&D tax relief was considered to be a form of notified state aid.
• SMEs receiving other notified state aid (e.g., grants) couldn’t claim SME tax relief for the same project.
• RDEC was available to grant recipients, as it’s a taxable credit and not a state aid.

From April 2024 Onwards

The UK has introduced a merged RDEC scheme and Enhanced R&D Intensive Support (ERIS):

• The merged RDEC is a taxable credit, and ERIS is a non-taxable, payable credit, allowing claims even when grant funding is received. To claim via ERIS, a company must be a loss-making SME that meets the R&D intensity condition whereby its relevant R&D expenditure is at least 30% of its total expenditure (including that of connected companies). However, loss-making, R&D-intensive SMEs that have a registered office in Northern Ireland (NI) and claim under ERIS will be subject to a three-year “de minimis” state aid limit of €300,000 (for most businesses). Above this limit, relief is available under the merged RDEC scheme.
• Unlike the SME scheme, companies must be trading to claim via the merged RDEC scheme. Like the SME scheme, relevant expenditure for the ERIS scheme includes any pre-trading costs on which relief would be available under the SME scheme.
• Contractor costs can now be included in R&D tax relief claims under the merged scheme. However, HMRC excludes overseas subcontractor costs unless strict conditions outlined in guidance CIRD150000 are met. These exclusions apply only when the R&D requires specific geographical, environmental, legal, or regulatory conditions that:
  • Are not present in the UK;
  • Are present in the location where the R&D is undertaken; and
  • Would be wholly unreasonable for the company to replicate in the UK.

Importantly, cost or availability of workers is not considered a valid reason for using overseas contractors.

For any claim under NI ERIS, the restrictions on relief for overseas spend on contracted-out R&D and externally provided workers do not apply; however, they will apply for any residual amounts claimed under the merged scheme.

Impact of Grants on R&D Tax Relief Claims: What Does This Mean for Claim Value?

The merged scheme rates match the RDEC rates for expenditure from 1 April 2023 onwards. The rate is 20%; however, as it is a taxable benefit, the credit received will vary between 15% to 16.2% depending on your rate of corporation tax. The big benefit for claimants will be the ability to include contractors involved in projects. Also, for companies that were normally SMEs that were considering grants and had to weigh up their best funding option, they can now rest assured that they can seek grant funding and R&D tax relief.

Assume a claimant has £1 million in qualifying project expenditure, with 70% funded by grants and 30% self-funded. This total includes £500,000 in staff costs, £250,000 for materials and software consumed, and £250,000 for specialist contractor fees.

Under the new scheme, a grant-funded project with £1 million in qualifying spend could see its claim value rise by 22% because of contractor costs being included (*subject to the 65% contractor payment cap). Projects with more UK third-party contractor spending may benefit even further.

Key Health Innovation Grants at a Glance

There are several science grant funding opportunities with upcoming deadlines, including science research grants, grants for forensic science, biomedical science grants, and more.

There is also the West Yorkshire Health Innovation and Digital Tech Investment Zone, a new initiative that will inject £160 million over 10 years into health innovation infrastructure across Bradford, Huddersfield, and Leeds. SMEs can benefit from incubation space, clinical collaboration, and support for product development.

Maximising Innovation with Ryan

Grants and R&D tax credits are powerful tools that work together to support innovation, but navigating them effectively requires expertise and strategic insight. With evolving rules and complex eligibility criteria, having the right partner makes all the difference. At Ryan, our expert team manages both grant funding and R&D tax credits under one roof, ensuring compliance, maximising funding, and streamlining the process for growing businesses.

Ryan has a number of life sciences sector specialists who can help with your grant application and/or R&D tax credit claim preparation.

Megan Young
Senior Consultant, R&D Technical

Megan is an R&D tax specialist with a Bachelor of Science in molecular biology from the University of Sheffield and a strong background in medical biochemistry and microbiology. Having recently completed the Association of Accounting Technicians (ATT) qualification, she brings scientific insight to advising clients across the biotech and life sciences sectors. At Ryan, she supports the preparation and review of R&D claims, ensuring technical accuracy and compliance under the UK’s evolving tax relief schemes.

Dr. Michael Lee
Manager, Grants

Michael is an experienced grants manager with more than 12 years of expertise in grant writing and project management for both academic institutions and for-profit organisations across Europe and Asia. He holds a bachelor's degree in forensic science, a master's degree in analytical chemistry, and a doctorate in analytical chemistry and bioengineering. Specialising in health and life sciences, Michael has successfully supported numerous Ryan clients in securing funding through competitive programs such as the Biomedical Catalyst, National Institute for Health and Care Research (NIHR), and Horizon Europe.

Dr. Rachel Milligan
Consultant, Grants

Rachel is a neuroscientist and grant specialist with deep expertise in neurobiology, virology, and infectious disease research. She completed a self-developed, grant-funded PhD on glutamate receptor trafficking and was among the first researchers to work on the live COVID-19 virus. Her career spans academic research, RNA vaccine testing, and data analytics. At Ryan, she leverages her scientific background to craft compelling innovation funding applications for breakthrough projects in pharma and medical research.