Life Sciences sector continues to benefit

Did the Life Sciences sector emerge as a winner in the summer Budget on 8 July?

George Osborne’s overall aim was to tackle the deficit by reducing spending and boosting growth via fuller employment creating a further 2 million jobs.

According to Scottish Development International, there are over 600 companies in the Life Sciences sector in Scotland employing over 30,000 people, and welcome news for the sector came when the Chancellor announced a lowering of the corporation tax rate from 20% to 18% by 2020 – a significant reduction compared to 28% in 2010.

There was further encouragement in terms of allowances for capital expenditure, which can be significant in many Life Sciences companies. The annual investment allowance (AIA) for eligible capital expenditure is currently £500,000 but was due to fall to only £25,000 from January 2016. The Chancellor announced there will now be a permanent AIA of £200,000 per annum. This will be very helpful to many small/medium sized companies in the sector.

However, it was not all good news. Since 2002 companies acquiring businesses with intangible assets, such as goodwill, could claim a tax deduction for this cost. However, this deduction will no longer be available for acquisitions made after 8 July 2015- a loss of a significant relief for the Life Science sector.

R&D tax relief is an important financial incentive for many companies in the sector and the introduction of the R&D expenditure credit scheme (RDEC) now allows loss making large companies to generate a repayment from HMRC. RDEC is very attractive for the Life Sciences sector; however, the Chancellor has corrected a legislative anomaly so that higher education institutions and charities will be ineligible to make an RDEC claim for expenditure incurred on or after 1 August 2015. The upside is that the Chancellor confirmed there is a short window for universities/ charities to make RDEC claims for qualifying R&D expenditure incurred from April 2013 to July 2015.

So, there’s good news from the Chancellor for tax paying Life Sciences companies with the reduced corporation tax rate and enhanced AIA. These changes should continue to make Scotland an attractive place to do business for the Life Science sector.

In addition, all companies in the sector continue to benefit from generous R&D and Patent Box tax reliefs, so it is important that such claims are made.

The Scottish Government has big ambitions for the Life Science sector and, hopefully, with the Chancellor’s help, these ambitions will be realised.

Barbara McQuillan, Tax Partner

Head of the Life Sciences Sector Group at Henderson Loggie