Medical device development is dense with qualifying R&D, from first prototype through verification testing to clinical evaluation. The judgement a medtech claim turns on is scope, not rate. Development work that resolves technological uncertainty qualifies; conformity work on functionality already proven does not; and the two run side by side through a device programme, often through the same engineer and the same test bench in the same week. Which scheme pays, and what it pays, follows from that boundary and from whether the company is loss-making and R&D-intensive.
| Claim element | Medtech |
|---|---|
| Typical qualifying activities | Sensing and signal work where published filtering and compensation methods do not hold across motion, temperature or drift; Coatings, adhesives or substrates that must keep their properties and biocompatibility through repeated sterilisation cycles; Integrating sensing, processing and power where a competent professional cannot readily deduce how the sub-systems combine; Software as a medical device, where the accuracy the clinical application demands is beyond established techniques; AI in diagnostics, where established architectures and training methods cannot reach the performance a clinical decision demands; A clinical investigation designed to answer a question the literature and bench data cannot |
| Costs that usually qualify | Staff time on design, build and testing, apportioned to the qualifying work; Materials used up building and testing prototypes; Payments to unconnected contractors at 65%, on the portion of R&D undertaken in the UK; Payments to the subjects of clinical trials, a category in its own right; Software, data licences and cloud computing used in the R&D, including model training compute |
| Costs that usually do not | Conformity assessment of proven functionality, technical documentation and the declaration of conformity; Maintaining the quality system, document control and supplier audits; Materials that end up inside an item sold in the ordinary course of business; Capital expenditure, rent and patent costs |
| Where claims go wrong | Claiming the final protocol run that records a settled design meeting its specification; Reading the MHRA's status-based triggers as evidence of technological uncertainty; Applying the overseas restriction to volunteer payments and own staff time, which it does not reach; Treating the EPW qualifying-earnings test and the subcontractor UK test as one test; Assuming ERIS on intensity alone, when the SME and loss-making conditions apply too |
| Relief available | Most companies claim the merged R&D expenditure credit; a loss-making SME that meets the R&D intensity condition claims ERIS instead. Current and earlier rates are set out in R&D tax relief rates by year. |
What counts as qualifying R&D in medtech?
Work seeking an advance in the field of science or technology by resolving uncertainty a competent professional could not readily resolve. In device development that test is met constantly.
Write the account in four moves. The baseline is what the field could already do: the published methods, the materials data, the architectures a competent professional would have reached for. The advance is the improvement in that capability the project sought. The uncertainty is the question the baseline could not answer, and the resolution is what was tried, in what order, and the date the question closed. Concept-level examples:
- Sensing and signal work, where published filtering and compensation methods do not hold across motion, temperature, tissue variation or drift.
- Design, materials and sterilisation: coatings, adhesives or substrates that must keep their properties and biocompatibility through repeated sterilisation cycles, with no performance data for the combination.
- Integration of sensing, processing and power into a form factor the body will tolerate. Standard components are not a bar: there is uncertainty where a competent professional cannot readily deduce how the sub-systems should be combined to have the intended function (paragraph 30).
- Software as a medical device, where the accuracy the clinical application demands is beyond established techniques. The Guidelines apply the same criteria to software engineering as to any branch or field of science or technology.
- AI in diagnostics, where established architectures and training methods cannot reach the performance a clinical decision demands on the available data. Retraining a standard model with routine tuning is adaptation, not an advance.
- Manufacture at scale, where tolerances and processes proven on the bench do not transfer. Uncertainty often arises in turning something already established as feasible into a reliable and reproducible process (paragraph 13).
The advance must be to the field’s capability, not just your company’s (paragraph 24), so reproducing what a competitor already sells needs careful analysis before it goes in a claim. The full test is in what counts as qualifying R&D.
Where does the line fall between development and regulatory work?
At the point the answer stops being in doubt. HMRC’s Guidelines for Compliance put the rule broadly — testing after the uncertainties have been resolved does not qualify — and give the device case as their example: obtaining regulatory certification for a product which already has proven functionality is not R&D. The exception matters as much as the rule — where certification requires further advances in science or technology to materially improve functionality, the work aimed at those advances qualifies. Our page on what HMRC’s Guidelines for Compliance expect from an R&D claim sets out that reading.
The MHRA regulates the UK medical devices market, and devices placed on the Great Britain market fall under the Medical Devices Regulations 2002. Most of the work that framework generates sits outside the claim: technical documentation, the declaration of conformity, the quality management system and conformity assessment itself. Verification testing splits along the same seam. Once modifications reflecting the test findings have been made and further testing is satisfactorily completed, the uncertainty is resolved and further work is not R&D (paragraph 39).
| Activity | Usually inside the claim | Usually outside the claim |
|---|---|---|
| Verification and validation | Test, fail and redesign loops while the answer is open; developing a test method where no established method measures the property | The final protocol run to record that a settled design meets its specification |
| Regulatory conformity | Further advances the certification demands to materially improve functionality | Conformity assessment of proven functionality; technical documentation; declaration of conformity |
| Quality system | Rarely anything | Maintaining the quality system, document control, supplier audits |
| Usability engineering | Formative work where an interaction failure has no known fix and drives a design change | Summative validation of a resolved design |
| Clinical evidence | An investigation answering a question the literature and bench data cannot | Literature-based evaluation demonstrating equivalence to a marketed device |
Scoping the boundary honestly protects the claim. HMRC checked around one in six R&D claims in 2023-24, its latest published figure, and claims that sweep whole regulatory budgets into qualifying costs are the sort that fail.
When does a clinical investigation resolve uncertainty, and when does it confirm?
It resolves uncertainty when the field could not already answer the question the investigation was built to settle. To UKCA or CE mark a device a manufacturer must show it meets the relevant essential requirements, and the MHRA says clinical data will usually be necessary to do that. The data can come from a critical evaluation of the literature, where equivalence to a marketed device is demonstrated and the data adequately shows compliance; from a critical evaluation of investigations of the new device; or from the two combined. A specifically designed investigation is likely to be required unless safety and performance can be shown by other means, and in particular for implantable and Class III devices. A literature-based evaluation, by contrast, establishes that the answer was already available, which is the opposite of an uncertainty.
The MHRA lists seven circumstances in which a clinical investigation of a non-UKCA or CE marked device should be strongly considered. Some are status-based — the device is implantable or Class III, it is proposed for a new purpose or function, or there is a new manufacturer of a high-risk device. Others describe the kind of gap in knowledge that also characterises technological uncertainty: a completely new concept of device where components, features and methods of action are previously unknown; a modification introducing a novel feature, particularly one with an important physiological effect, or one that might significantly affect clinical performance or safety; materials previously untested in humans coming into contact with the body, applied to a new location, or used for significantly longer than before; and cases where in vitro or animal testing cannot mimic the clinical situation. An investigation answering one of the second group is usually resolving uncertainty; the status-based triggers say nothing either way. Post-market follow-up on a marked device, used within the exact conditions of its marking, generally is not.
The regulatory steps are not themselves the claim. A manufacturer must give 60 days’ prior notice to the Secretary of State for Health, in writing to the MHRA through the IRAS portal, before the devices are made available to a medical practitioner. An NHS study also needs a research ethics committee opinion, with HRA Approval for sites in England and NHS Permission in the other UK nations. Those are gates rather than R&D. So is evidence generated for adoption: NICE’s evidence standards framework asks whether a digital health technology is clinically effective and offers value to the health and care system, and NICE is explicit that meeting it does not mean a technology has been assessed or endorsed by NICE, or given regulatory approval. That is a procurement question, not a question about whether the technology can be made to work.
Payments to the subjects of clinical trials are a qualifying cost category in their own right, where the trial is an investigation in human subjects undertaken in connection with the development of a health care treatment or procedure. The definition turns on a treatment or procedure rather than on a device, so a device investigation needs that connection shown. It is straightforward for a therapeutic or surgical device and needs argument for a standalone diagnostic.
Where an investigation runs overseas, the restriction reaches two categories only: payments to the contractor running it, and externally provided workers. Those qualify under a narrow exception — conditions necessary for the R&D that are absent in the UK, present where the work is done, and wholly unreasonable for the company to replicate here. A regulatory requirement preventing the work being done here counts, and so can a participant population the UK cannot supply; the cost of the R&D and the availability of workers are expressly disregarded. Volunteer payments the company makes itself, its own staff time and its own consumables carry no territorial restriction. Overseas R&D sets out both categories, and clinical trial costs in R&D claims covers the trial costs themselves.
Who claims when a design house does the work?
Usually the company that decided the R&D was needed. For accounting periods beginning on or after 1 April 2024, the customer claims contracted-out R&D where it intended or contemplated, when the contract was made, that R&D of that sort would be done; where it did not, the contractor claims in its own right. A device company commissioning a design house or a test laboratory against a defined scope has almost always contemplated the work. Payments to an unconnected contractor enter the claim at 65%, and generally only where the work is done in the UK. The same R&D cannot be claimed twice, so settle this before drafting: contracted-out R&D works through the test.
Grants are a smaller problem than they were. For those same periods, grant funding, including Innovate UK, no longer blocks or reduces relief, because the old subsidised-expenditure rules were abolished. Device companies told years ago to keep grants and R&D claims apart should revisit that advice. The detail is in grant funding and R&D tax relief.
Which costs go into a medtech claim?
Staff time on design, build and testing, apportioned to the qualifying work. Externally provided workers, such as agency-supplied contract engineers, at 65% of payments to unconnected providers, limited to the part attributable to qualifying earnings — earnings on any part of which either the business contracting the worker or your own company must account to HMRC for both PAYE income tax and Class 1 National Insurance. Where any part of a worker’s earnings is UK-payrolled, all of them count. Subcontracted development at 65% too, but on a different test: the portion of the payment attributable to R&D undertaken in the UK. Software, data licences and cloud computing used in the R&D, including the compute behind model training. Payments to clinical trial volunteers. Capital expenditure, rent and patent costs do not qualify, though capital spending on R&D can attract R&D allowances instead. Category by category, the rules are in which costs qualify for R&D tax relief.
Consumables need the closest attention. Materials used up building and testing prototypes qualify; materials that end up inside an item you then sell in the ordinary course of business do not. Where a first article was always going to be delivered to a customer, the split runs wider than the materials, because part of that build meets the order rather than resolving the uncertainty: can I claim R&D tax relief on a prototype that is later sold? sets out both boundaries. Prototype iterations carry evidential weight too: a version history of what failed, what changed and why dates the resolution as well as the uncertainty, and it is expensive to reconstruct later.
Who is the competent professional in a device programme?
The person whose judgement the uncertainty is measured against, in the field the uncertainty sits in. HMRC expects three attributes together: knowledge of the relevant scientific or technological principles, awareness of the current state of knowledge in the field as a whole, and accumulated experience with a successful track record. Having worked in a field is not enough on its own. Devices complicate this, because one programme can carry a materials question, a signal-processing question and a software question at once, and competence is judged field by field. The regulatory affairs lead is rarely the right person for any of them: their expertise is the conformity route, not the technology. Who counts as a competent professional works through the test.
Will a medtech claim under ERIS or the merged scheme?
It depends on size, profitability and intensity. A loss-making device company that is an SME, and whose relevant R&D expenditure is at least 30% of its total relevant expenditure, claims under Enhanced R&D Intensive Support (ERIS). The SME test aggregates connected and partner enterprises, so a venture-backed company can fail it on its investors’ numbers. The intensity denominator is broadly the trading costs in the accounts for the period, not just the R&D ones, and connected companies count on both sides of that ratio too. A one-year grace period can protect a company whose intensity later dips, but only where it met the condition in its most recent prior 12-month accounting period and obtained relief for it under the old SME scheme or ERIS — a merged-scheme claim in that period does not count. The arithmetic for a pre-revenue profile is in ERIS for pre-revenue biotech and medtech.
Take a loss-making device company with £100,000 of qualifying spend and sufficient losses to surrender. Under ERIS that is £100,000 x 186% x 14.5% = £26,970 in cash, and the credit is not taxable. The same company under the merged scheme takes a £20,000 gross credit reduced by notional tax at 19%, leaving £16,200 in cash. The £10,770 gap is what the 30% test is worth on that spend, which is why the ratio deserves checking before the period ends rather than after it. Both sit before the PAYE cap, which bites hardest on exactly this profile: a small payroll directing a heavily outsourced programme.
A profitable medtech claims the merged scheme: a 20% taxable credit, worth £15,000 net per £100,000 of qualifying spend at the 25% corporation tax rate, £14,700 at the 26.5% marginal rate where augmented profits fall between £50,000 and £250,000, or £16,200 at 19%. Every rate, including those for earlier periods still open to amendment, is in R&D tax relief rates by year; the claim value calculator and ERIS intensity calculator run your own figures. Investors ask a related question, and the answer is short: claiming an R&D tax credit does not affect EIS or SEIS status.
A note on the Welsh medtech cluster
LimestoneGrey works from Cardiff, alongside a Welsh medtech community that has grown around organisations such as Life Sciences Hub Wales, which exists to connect industry with health and social care bodies and research organisations. We are members of MediWales, the Welsh life science network, and we serve medtech companies across the whole of the UK, well beyond Wales.
Why medtech companies work with LimestoneGrey
LimestoneGrey is a firm of Chartered Tax Advisers and Chartered Accountants, regulated by ICAEW, specialising in R&D tax relief. The practice is led by a dual-qualified chartered accountant and chartered tax adviser, every claim is signed off by a chartered adviser, and the firm is registered with HMRC as a tax adviser. Enquiry support is included as standard in every engagement: see what to expect from an HMRC enquiry.
“Having LimestoneGrey’s expertise to guide us through each step made a huge difference. The process was explained clearly and handled with professionalism, ensuring everything met the required legislative standards. We’ve built a genuine partnership with LimestoneGrey and value their ongoing advice and shared commitment to innovation.”
Med-Tech client
Medtech sits within our wider life sciences practice. If you are unsure where the qualifying boundary falls in your device programme, or which scheme your next period lands in, contact us: we will map it with you and agree the fee before any work starts. And if another adviser already prepares your R&D claims, our free claim review is a confidential second opinion on your most recent submission.
Sources
- Guidelines on the meaning of R&D for tax purposes — paragraphs 13, 24, 30 and 39, and example B1 with paragraphs 15 to 18, applying the Guidelines equally to software engineering.
- GfC3 part 4 — testing after the uncertainties are resolved does not qualify; certifying proven functionality is HMRC’s example; certification requiring further advances to materially improve functionality does qualify.
- GfC3 part 3 — the three attributes of a competent professional.
- Regulating medical devices in the UK — the MHRA’s remit, the Medical Devices Regulations 2002, and UKCA marking through a UK approved body.
- Clinical investigations in Great Britain — clinical data usually necessary to show conformity, its three routes, the seven circumstances, and the 60 days’ notice.
- Determining if a clinical investigation is required — post-market follow-up within a device’s exact marked conditions needs no notification.
- Health Research Authority — HRA Approval and ethics review for a medical device study.
- NICE evidence standards framework — clinical effectiveness and value to the health and care system, and NICE’s caveat that meeting it is neither endorsement nor approval.
- Check what R&D costs you can claim — the categories, the 65% rule, consumables sold or transferred, cloud and data costs, clinical trial subjects, and the capital and rent exclusions.
- CTA 2009 s1132A — qualifying earnings: PAYE and Class 1 NIC on any part qualifies the whole.
- CTA 2009 s1136 — 65% of the portion incurred on R&D undertaken in the UK.
- CTA 2009 s1138A — the overseas exception, headed “externally provided workers and contractors”, disregarding cost and worker availability.
- CTA 2009 s1140 — a clinical trial as an investigation in human subjects connected with developing a health care treatment or procedure.
- Merged scheme and enhanced R&D intensive support — the 20% credit and the ERIS SME, loss-making and 30% intensity conditions.