Biotech and the Merged Scheme
UK biotech is one of the most R&D-intensive sectors in the country. Preclinical drug discovery, target validation, assay development, animal efficacy work, bioprocess development, diagnostic development and medical device engineering all sit squarely within what the BIS Guidelines consider a scientific advance with genuine uncertainty. The question for a biotech CFO is rarely "do we qualify" and almost always "how do we maximise the claim defensibly under the new rules".
Under the merged scheme in force from 1 April 2024, biotechs claim at a 20% above-the-line credit regardless of company size. Loss-making companies with R&D at 30% or more of total expenditure access ERIS at a 27% credit rate. Most early-stage biotechs sit well above the 30% threshold and therefore default to ERIS. Our merged scheme guide walks through the mechanics.
Two merged-scheme changes materially affect biotechs. First, the overseas subcontractor rule: work subcontracted outside the UK is generally excluded. Many biotechs use EU or US CROs for specialist work, and the statutory exception requires careful application. Second, grant-funding contamination is removed, which is a net benefit for Innovate UK and Biomedical Catalyst recipients. See our grant guide.
What Qualifies in Biotech
- Target identification, target validation and biomarker discovery work.
- Assay development: in-vitro, cell-based, high-throughput screening, ADME, and novel biochemical assays.
- Lead discovery and optimisation: compound screening, medicinal chemistry, SAR iteration, hit-to-lead work.
- Preclinical in-vivo efficacy, safety and PK/PD studies.
- Formulation development, stability, and dosage form engineering.
- Process development and scale-up for biologics (cell line development, upstream fermentation, downstream purification, analytics).
- Bioprocess engineering for regulated GMP manufacture where the process development itself addressed genuine scientific uncertainty.
- Diagnostic development: novel assays, lateral flow device engineering, qPCR panels, point-of-care instrumentation.
- Medical device R&D where biological, mechanical and software integration presented uncertainty.
- Clinical programme design elements where genuine scientific uncertainty remained (endpoints, biomarker validation, novel trial design). Note: routine trial operations are distinct from scientific R&D.
- Bioinformatics, ML-driven drug discovery, in-silico screening and structural biology work where novel method development was required.
- Gene and cell therapy vector design, payload engineering and delivery work.
- Synthetic biology and cell-line engineering, including iPSC and CRISPR-based programmes.
What Does Not Qualify
- Routine clinical operations that do not resolve scientific uncertainty (site payments, data management to existing protocol).
- Regulatory affairs and dossier preparation work.
- Quality assurance against existing GMP standards.
- Commercial, business development and licensing work.
- Investor relations, legal and IP management (patent drafting is not R&D although the underlying science is).
- Market access, pricing and reimbursement work.
- Training, recruitment and HR.
- Fund-raising, commercial negotiation and deal work.
- Office administration and facility management not tied to R&D.
- Routine analytical work against an existing specification (release testing for commercial product, stability testing on a marketed product).
Qualifying Costs in Biotech
Under the merged scheme, typical biotech claim pools include:
Staffing. Gross salary, employer NI and employer pension for UK scientists, research associates, lab managers, bioinformaticians, process development engineers, CMC leads and directly-supporting project managers, apportioned by time on qualifying R&D.
Subcontractors and EPWs. UK-only under the merged scheme. UK CRO and UK specialist service payments are claimable at the 65% statutory rate for unconnected parties. Overseas CRO spend is generally excluded unless the narrow UK-infeasibility exception applies.
Consumables. Reagents, antibodies, assay kits, cell lines, media, growth factors, radioisotopes, test compounds and animal-study consumables used in qualifying work.
Utilities. Power, water, compressed gases (nitrogen, CO2) used directly in R&D labs, apportioned.
Software and data. Bioinformatics platforms, chemical databases, ELNs, licensed genomics databases used directly in R&D.
Cloud. Cloud HPC for molecular dynamics, docking, sequence alignment, AI-driven drug discovery models and imaging workloads. Allowable from April 2023.
HMRC Enquiry Risks in Biotech
- Overseas CRO spend. The single largest enquiry risk is continuing to claim material overseas CRO cost without clear statutory-exception reasoning.
- ERIS intensity denominator. HMRC scrutinises the total expenditure figure carefully. Excluding certain overheads or misclassifying cost categories to cross the 30% threshold is a focus of enquiry.
- Clinical vs R&D split. Regulatory, monitoring and site-payment costs must be separated from genuine R&D. Clinical programme management is generally not R&D; the protocol design and biomarker validation work may be.
- Grant-funded portion. Subsidised expenditure rules still apply. A clear split between grant-funded and self-funded R&D is required.
- Subcontracted vs in-house activity. Contract terms with CROs and academic collaborators determine who is entitled to claim. Where the CRO retains technical risk, the CRO may claim; where the biotech directs the work, the biotech claims. Careful contract review is essential.
- Advance in science claims. HMRC expects the advance to be framed against the field, not the company. A specialist will phrase advances against published literature and competitor work.
Indicative Claim Ranges for UK Biotech
| Stage | UK headcount | Typical qualifying spend | Indicative claim value |
|---|---|---|---|
| Seed / very early preclinical | 3 to 10 | £300k to £1m | £80k to £270k (ERIS) |
| Series A preclinical | 10 to 30 | £1m to £4m | £270k to £1.08m (ERIS) |
| Series B late-preclinical / CMC | 30 to 80 | £3m to £12m | £800k to £3.2m (ERIS) |
| Clinical-stage with ongoing preclinical | 40 to 150 | £5m to £30m | £1.35m to £8.1m (ERIS or standard) |
| Diagnostic / medical device | 10 to 50 | £500k to £4m | £75k to £1.08m |
Indicative Example: A Series A Preclinical Biotech
A UK preclinical oncology biotech with 22 scientists has total expenditure of £4.1m for the year to 31 March 2026. The company runs two lead programmes in different target classes and maintains a medicinal-chemistry collaboration with a UK university. Grant income from Innovate UK covers £900k of directly attributable costs.
Qualifying review: £2.95m of qualifying expenditure, comprising £1.55m of UK salary cost on the scientific team; £620k of UK CRO spend (two UK contract labs for specific assay work, at the 65% rate contributing £403k to the pool); £480k of consumables (reagents, antibodies, assay kits, test compounds, animal-study supplies); £110k of HPC cloud and licensed bioinformatics data; and £180k of software licences and specialist database access.
R&D intensity: £2.95m / £4.1m = 72%. The company is loss-making and well above the 30% threshold, so ERIS applies. The grant-funded portion is treated under subsidised-expenditure rules and handled separately.
ERIS credit on the self-funded qualifying pool (assume £2.05m after removing the grant-funded portion): £2.05m x 27% = £553,500, of which a substantial portion may be received as a cash payment from HMRC (subject to the PAYE cap and statutory adjustments). A specialist will model the grant-funded portion under the subsidised rules to maximise total relief.
Next Steps
A 15-minute call with a specialist will confirm ERIS eligibility, scope the overseas CRO question, and give you a defensible claim value under the merged scheme. Your accountant stays in the loop. See also our agritech page and loss-making company guide.