Underpinning today’s budget announcements was the desire to make the UK a scientific superpower, and there is a lot for Pharmaceutical and Life Science companies to get excited about, even though the headlines might focus on the 25% corporation tax rate scheduled from April 2023.
For those companies currently engaged in expanding their research or manufacturing operations in the UK, the announcement of a 130% super deduction for qualifying plant and machinery and a 50% first-year allowance for special rate assets is very welcome, notwithstanding the fact that there are already 100% capital allowances available for capital expenditure on research and development assets. The super deduction combined with the temporary extension of the loss carry-back rules (extended from one year to three years) will provide companies with an ability to carry back up to £2m of group losses in the year ended 31 March 2021 and in the year ended 31 March 2022, to previous accounting periods, which could generate significant tax savings, and cash benefits, before the increase in the CT rates takes effect from 1 April 2023. The full effect of the corporation tax rate increase is borne on total annual profits where profits exceed £250K and the 19% rate remains for profits less than £50K, with a tapered rate applying between these thresholds.
In addition, the Chancellor wishes to put in more measures to increase the attractiveness for high-growth scientific businesses, announcing various measures and potential improvements to R&D tax reliefs, management incentives, and visa reforms to entice talented scientists to the UK to ensure it remains internationally competitive. Also announced today, were reforms to the UK listing rules with the intention of making the UK a more attractive place to IPO.
For the larger groups, there are a few tax changes that arise from the headline rate increase and recent EU Exit. From 1 June 2021, companies paying interest or royalties to EU-based connected parties will have to rely on the relevant tax treaty to determine the rate of withholding tax to be deducted from payments to EU associates and can no longer rely on the EU interest and Royalties Directive. In addition to this, the Diverted Profits Tax rate will increase to 31% from 2023 which may impact UK companies that are part of a more complex international group.
Specifically smaller life science companies may benefit from the additional £375M which has been allocated to the Future Fund which will be used to support the scale-up of the most innovative R&D intensive business.
There is an extension of the Covid loan support and companies of any size will immediately be able to apply for loans of up to £10M under the Recovery Loan Scheme. The government is also investing in life sciences through additional funding for the next generation of Covid vaccines and testing. Finally, there is also more funding for traineeships which will provide some help with recruitment.
What was not trumpeted today was the introduction of the capping of the repayable SME R&D cash credit, however, in the overall scheme of things Rishi Sunak Budget 2021 has helped ensure that the important life sciences and pharmaceutical sectors retain their prominent position as a key driver of growth in the UK economy.
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