The Spring Budget 2023 has brought some welcome news for the life sciences/biotech sectors.
Research and development (R&D) tax reliefs for SMEs have been refined and will offer some much-needed support for these industries. The Treasury’s policies announced in Spring Budget 2023 are now beginning to match the Government’s rhetoric around creating a UK science and technology superpower.
Below is a summary of the points most of interest to life sciences businesses as we see it. Further details will follow once these have been fleshed out by the Government.
R&D TAX CREDITS
In short, it’s all good compared to where we were after the Autumn Statement 2022. Taken together, these two new R&D-related changes can only enhance the UK as an attractive destination where innovative companies can set up and grow. We hope that this also represents a more measured and analytical approach from HM Treasury towards a new, merged, R&D relief scheme for SME and large companies. We remain engaged with the Government following its consultation into this proposal and will bring you news whenever it is available.
Rate of relief for loss-making SMEs: enhanced
After intensive lobbying of HM Treasury by the UK BioIndustry Association, with input from Colin Hailey, an enhanced rate of relief has been announced, for R&D spend from 1 April 2023.
The rate of relief is 27p per £1 of R&D spend, but this only applies if all the following conditions are met:
- The company is an SME;
- it is loss-making ie, it is making a cash credit claim; and
- it has an R&D intensity of 40%. Broadly this requires the qualifying R&D spend for the year to be 40% or more of the total expenditure in the profit and loss account.
If these three conditions are not met, however, a lower rate of relief applies to SMEs, this being 18p per £1 of spend.
While there will undoubtedly be companies that miss out on this enhanced R&D relief rate, the change is welcome news for many companies in the biotech space.
Overseas expenditure restriction: delayed
The planned restriction on overseas subcontractor spend in R&D claims is being delayed, so that it will apply for accounting periods beginning on or after 1 April 2024 (not 2023 as previously announced by the Treasury).
Again, this is welcome news. When this restriction does come into force, overseas spend can only be included in R&D claims if it meets a tightly worded exemption. The delay to implementation will leave more time for HMRC guidance on the exemption to be refined.
IN OTHER NEWS
Capital allowances: revised
Capital allowances for plant and machinery will be revised from 1 April 2023 until 31 March 2026, as follows.
- 100% full relief in the year of spend for assets such as lab equipment, computers and desks.
- 50% relief in the year of spend for special rate or long-life assets.
Share schemes: revised
Changes to share schemes will be effective from 6 April 2023, with one exception (noted in the final bullet point under EMI schemes).
- The value of shares that can be place under option per employee increases from £30,000 to £60,000.
- The requirement that states only certain types of shares are eligible under CSOP schemes has been removed. This should now allow any share class to be used in within a CSOP scheme.
This should make CSOP schemes a more viable successor to EMI schemes for larger companies.
- The need to notify employees of the ‘restrictions in value’ on their shares, and to obtain an employee declaration of their working time, will both be removed.
- The need to notify HMRC of the grant of EMI options within 92 days of grant will change to a deadline of 6 July following the tax year in which they were granted. Note: this change will be effective from 6 April 2024.
These relaxations are welcomed, although the original requirements are likely to remain necessary for options granted before 6 April 2023.
SEIS risk capital scheme for investors
- The limit on SEIS funds that a company can accept will increase from £150k to £250k.
- The gross asset limit will increase from £200k to £350k.
- The ‘new trade’ limit will increase from 2 years to 3 years.
- The amount an individual can invest under SEIS will increase from £100k to £200k.
These increases are welcome, although the company limit of £250k is still very low, and using SEIS and EIS in combination on a funding round remains overly intricate.
If you’d like to discuss any of the above points in more detail, please do get in touch.