Financial compliance is an important consideration for healthcare businesses aiming to refine and advance medical innovations. There is pressure to comply with various tax and reporting requirements without stifling the growth needed to launch groundbreaking treatments, devices and services. This balancing act is even more apparent during the 2024/25 tax year, as the UK government continues to adjust rules around areas such as research and development (R&D) relief, corporate tax rates and investor incentives.
Below, we examine how financial compliance can affect funding, development and delivery of medical innovations in the UK. We also explore potential strategies that healthcare and life-sciences companies may adopt to ensure they meet their statutory obligations while still investing in research that enhances patient outcomes.
The importance of financial compliance in healthcare
Healthcare and pharmaceutical entities need to meet a range of regulatory requirements, from accurate financial statements to timely tax returns. These responsibilities ensure that businesses operate in a transparent way, protect their patients’ interests and safeguard public funds, especially when operating through NHS contracts or dealing with government grants.
Recent data from the Office for National Statistics shows that UK spending on health-related research and development has been on an upward trend. But oversight remains high. For instance, regulators want to ensure that taxpayer money, including tax reliefs, is used appropriately. HMRC has stepped up its scrutiny of R&D claims in the past few years, meaning healthcare organisations have to be cautious when claiming.
Effect on funding and investment
Meeting tax-filing deadlines, adhering to audit requirements and preparing accurate financial statements can place a strain on internal resources. This may create cashflow challenges, especially for smaller healthcare startups looking to secure investment to bring new treatments to market.
In some cases, venture capital and private-equity firms will only fund businesses that show proper compliance. Demonstrating good governance and clear accounting processes helps potential investors feel confident about a company’s ability to handle larger sums of money. On the other hand, a lack of compliance could deter investors who fear penalties, reputational damage and possible delays.
R&D tax relief and corporation tax
Compliance with R&D tax relief rules is a key area for many businesses in the healthcare sector. HMRC’s guidelines set out which costs qualify, how to calculate the benefit and the records needed to support claims. As of the current rules, R&D relief for small or medium-sized enterprises (SMEs) typically allows an additional deduction of qualifying expenses, though the rates changed in April 2023. It is vital to maintain full and accurate documentation, particularly for complex medical projects with multiple phases.
And it is worth noting that the UK’s main rate of corporation tax is set at 25% for businesses with profits above £250,000. Smaller businesses with lower profits still benefit from a lower rate, but must keep up to date with any thresholds or marginal rates introduced. This can influence planning around innovation expenditure, since businesses might time their capital spending to make the most of available reliefs, or structure their R&D programmes to stay within certain profit thresholds.
For more information on R&D tax relief, you can visit HMRC’s official guidance or contact us here at Richardsons. You could also consider reviewing Companies House’s guidance on filing annual accounts to ensure your financial statements reflect any R&D activities accurately.
Balancing compliance with innovation
The key is finding a balance that does not hamper innovation. Some organisations believe that strong compliance structures reduce agility. But well-managed processes can actually increase efficiency by ensuring that financial information is collated and audited in a standardised way. That consistency helps business leaders detect any early signs of overspending or misallocation of budgets, particularly within complex R&D projects, which can ultimately save time and money.
Healthcare organisations might also explore collaborative partnerships, especially with universities or research institutes. These can share the compliance burden if done correctly. By forming clear joint venture agreements or sub-contracting arrangements, each party can leverage its own compliance processes and expertise. This can help reduce duplication and the risk of falling short of financial reporting obligations.
Cashflow concerns for healthcare SMEs
For smaller healthcare startups, compliance can seem like a steep cost. Hiring specialist finance staff or working with external advisers can be expensive. But the alternative – missing deadlines, submitting inaccurate returns or breaching guidelines – can lead to fines or the threat of an investigation, both of which can derail early-stage funding.
One potential solution is to use R&D tax credits to top up cashflow. By carefully documenting eligible R&D activities, SMEs can recoup a portion of their research spending. This extra liquidity can cover ongoing development costs or help maintain working capital until a new product gains regulatory approval. We help many clients with these claims to ensure they are prepared in good time for the relevant deadlines.
Future outlook for healthcare businesses
Stricter oversight may continue over the coming year. As the life-sciences sector grows, financial regulators will want assurance that companies are acting responsibly. The Medicines and Healthcare Products Regulatory Agency (MHRA) has also faced resource pressures, with the government seeking to maintain the UK’s position in global pharmaceutical research post-Brexit. That may mean more checks on clinical trial finances, including how smaller players fund their pilot studies.
Yet a collaborative approach between industry and government is likely. Healthcare has long been a central focus for policymakers, especially when it comes to encouraging medical breakthroughs. The UK government has indicated that it wants to offer targeted incentives for R&D-intensive businesses. During 2023, a higher credit rate was introduced for R&D-intensive SMEs, indicating that new or extended measures might follow in 2024/25.
How we help
At Richardsons, we guide healthcare organisations through the financial compliance process. Our teams stay up to date on changing regulations and work with clients to develop strategies that keep them on track. We review R&D tax relief claims, ensure the accuracy of financial statements and advise on corporate structuring to make compliance simpler.
If you need assistance with audits or corporate tax planning, Richardsons can help. And if you want more detail on how we approach finance in the healthcare sector, please read about our specialist services.
Next steps
Financial compliance has a direct effect on the funding, development and delivery of medical innovations. It is easy to see compliance as a barrier, but a strong framework supports investor confidence, manages risk and ensures that businesses adhere to their duties. This, in turn, can accelerate progress in patient care, giving healthcare organisations the freedom to focus on ground-breaking discoveries.
If you want tailored guidance on financial compliance for your healthcare or life sciences business, contact us. Our specialist advisers can help you secure funding, claim R&D tax relief and plan for a successful product pipeline.
