Autumn Statement 2016 – Principal Tax Measures for Life Sciences

Below is a table overview of the principal tax measures for Life Sciences in the Autumn Statement.

Measure Comment
Corporation Tax  No further announcements on the rate of corporation tax which will be reduced to 17% in 2020. Shortly before his departure George Osborne alluded to a further reduction to 15%.  This appears to have been dropped – at least for the time being as the government recommits to the business tax road map issued in March 2016.
R&D Incentives – The government will look at ways to build on the introduction of the ‘above the line’ R&D tax credit to make the UK an even more competitive place to do R&D. It appears that the focus will be on the R&D Expenditure Credit and further details are due to be announced in the new year.   FTI have led representations for the acquisition of data for research purposes to be introduced as a category of qualifying expenditure addressing an increasingly important shortcoming in the current legislation and will continue our efforts in light of this announcement.  HMRC have also published new simplified guidance on R&D tax relief for SMEs.
Patent Box – As expected, the government will legislate in 2017 to add specific cost sharing provisions to the Patent Box rules. The provisions will aim to ensure that such companies are neither penalised nor able to gain an advantage under these rules by organising their R&D in this way. This will have effect for accounting periods commencing on or after 1 April 2017.
Substantial Shareholdings Exemption (SSE) – Following consultation, the government will make changes to simplify the rules, remove the investing requirement within the SSE and provide a more comprehensive exemption for companies owned by qualifying institutional investors. The changes will take effect from April 2017. This is expected to significantly widen the availability of SSE with the investing requirement being removed and a more comprehensive exemption for companies owned by qualifying institutional investors.
Tax Losses – As announced at the budget, from 1 April 2017 there will be a restriction to 50% of the amount of profit that can be offset through losses carried forward. The restriction will only apply to UK group profits in excess of £5 million. Although the limitation on offset will only impact profits over £5m this might bite sooner than expected upon new product apprsignificant milestones. A relaxation to the rules concerning the use of tax losses incurred from 1 April 2017 against profits of different activities and between group members may mitigate this measure for some.
VCT/EIS – In 2017 EIS and VCT rules will be amended to:The government will not be introducing flexibility for replacement capital within the tax-advantaged venture capital schemes at this time, and will review this over the longer term. We expect these changes to address previous limitations to the existing rules.
Termination payments – From April 2018 termination payments over £30,000, which are subject to income tax, will also be subject to employer NICs. The first £30,000 of a qualifying termination payment will remain exempt from income tax and National Insurance.
Employee Shareholder Status – Having been introduced in 2013, this will be abolished from 1 December 2016. The benefit of this relief had been reduced in the 2016 Budget when the CGT free element was capped at £100k.
This incentive was being increasingly utilised within the sector.  However, it was seen as a measure that was largely being exploited by senior management and failing to achieve the original policy objectives.
PAYE Settlement Agreements – As announced at Budget 2016 and following consultation, the government will legislate in Finance Bill 2017 to simplify the process for applying for and agreeing PSAs. This will have effect in relation to agreements for the 2018 to 2019 tax year and subsequent tax years. The summary of the recent consultation will be published next month which may include: removing he requirement for an agreement, allowing companies to self-certify and redefining what can be included.
Salary Sacrifice – Following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars. This will return the tax position for employees swapping salary for benefits to the original position. Arrangements in place before April 2017 will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.
National Insurance Contributions – Following a recommendation from the Office of Tax Simplification, primary and secondary Class 1 thresholds are to be aligned from April 2017. This is expected to represent an increased cost to businesses in paying secondary National Insurance with the government expecting to receive an extra £750m by 2021-22 as a result.

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Published 24. November 2016 in News UK