The BioIndustry Association (BIA) has announced that changes to small and medium enterprises (SME) research and development (R&D) tax credit schemes could harm a thriving sector.

This is because the Government is proposing to introduce a cap on the value of cash payments loss-making SMEs can receive through the R&D tax credits scheme, which are a valuable source of finance for young companies trying to get from one venture capital fundraise to the next.

Despite Government claims that it is exploring options to reduce the impact on ‘genuine companies’, a public consultation was launched in March and will close on 24 May, detailing that cash claims would be capped at three-times the PAYE and National Insurance Contributions (NIC) liabilities of a company.

The aim is to prevent fraud, but analysis by the BIA shows the measure will have unintended consequences for life science companies, with between 50% and 60% of genuine SMEs potentially affected, including include start-ups and those funding clinical trials in a sector characterised by a high level of R&D outsourcing.

As a result of the change, many companies will not have the capital or option to change their outsourcing business model and will either need to scale back their R&D or will not be viable at all.

Steve Bates, CEO of the BIA said: “The UK life sciences sector is an economic success story, creating highly skilled jobs and providing a platform for the UK to be at forefront of innovative science and treatments that will benefit patients now and going into the future.

“While the Government’s consultation was done with the best of intentions, if these proposals are introduced, it could put a hard brake on the UK’s rapidly expanding biotech start-up and scale-up community and affect other tech sectors in similar ways. It will also have knock-on effects for hundreds of service and supply SMEs across the UK who will see a loss of business, as well as universities and hospitals that receive significant funding from industry and conduct clinical research.

The BIA is calling on companies from across the life sciences sector, particularly SMEs, to respond to the Treasury and HMRC consultation to ensure that their voice is heard.