One of the major announcements in today’s Budget impacting the Pharmaceutical and Life sciences sector was the confirmation of the Government’s continuing desire to increase the R&D investment that the country makes.
This was evident from initiatives from the public sector with £20 billion committed by 2024/25 and from the private sector through the reform of the R&D tax credits system.
We are expecting further detail on the changes to the R&D tax credits regime in the next few weeks. In the meantime, we now know that the main changes to this regime will come into effect from April 2023. On the positive side, the addition of data and cloud computing costs as part of qualifying expenditure will undoubtedly help those companies using these modern research technologies to seek out new medical advances. However, that is tempered by the fact that R&D reliefs will focus more on what R&D is being performed in the UK. This could have a significant impact on some companies in this sector, particularly those that collaborate globally on R&D. Currently, in the right circumstances it is possible to claim for costs of overseas staff in UK R&D tax relief claims.
The government also recognises that there is a need to make the UK a more attractive place to do business, and there is a key measure to attract scientists and clinical professionals. A new series of visas are being put in place to attract to the UK those wanting to develop the next generation of medical discoveries. Initiatives around these are also being designed to establish a Global Talent Network to proactively find and bring talented people to the UK.
In addition, there is a new government consultation discussing ways to make it easier to redomicile overseas companies to the UK. In its introduction, the consultation mentions that companies may wish to relocate their R&D centres to the UK, so the Government is clearly hoping that global pharmaceutical groups focus more on their R&D activity in the UK.
For those early-stage companies, the focus of this Budget on innovation and growth is clear. There is confirmation of the £1.4 billion Global Britain Investment Fund intended to support investment in the UK life science, offshore wind, and automotive manufacturing sectors. Likewise, the Future Fund launched this year with £375m of funding seeking to supply venture finance for early-stage businesses, which are R&D intensive, such as life science companies.
The Autumn Budget did not focus on tax-raising measures, as the main tax increases were pre-announced in the Spring Budget (e.g. the 25% corporation tax rate that comes into effect from 1 April 2023). The 100% annual investment allowance for the first £1m of capital spend per annum has been extended to 31 March 2023 and supplements the 130% super deduction regime for plant and machinery expenditure that runs to that date. One relief that is being repealed from budget day is the ability for a UK company to claim cross-border group relief from affiliated entities.
The Health & Social Care levy which is being borne by a 1.25% increase in employee and employer national insurance contribution was also preannounced in September and other than the announcement of an increased national living wage to £9.50 there were no other employment tax changes mentioned and similarly, there were no real VAT changes that impacted this sector.
For Pharmaceutical and Life Science sector, the commitment of the government to innovation, the proposed changes to R&D and the new visa systems will be the highlights of the Autumn 2021 Budget.
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