The UK’s BioMedTech sector has struggled in recent years as jobs in research, trials and production have been shed, writes Tim Ferris, Partner, corporate tax and TMT specialist with BDO. However, the Government has recently weighed in to support the industry with the December Life Sciences strategy paper.Innovation was the key theme and David Cameron reaffirmed his commitment to the industry and his desire for the country to maintain its reputation as a world leader in the field. To help deliver this vision, he announced funding for new research centres as well as a £180 million biomedical catalyst fund and enhanced tax reliefs.
Whilst the Government’s initiatives are not a panacea for the sector, the extra support will be valuable. In any case, the resilience and innovative drive of Cambridge’s BioMedTech cluster is likely to continue to prove an attractive opportunity to investors – even during the prolonged downturn.
There are many, including Cambridge University’s Vice Chancellor Sir Leszek Borysiewicz, who expect the sector to outperform hi-tech in the region. BDO expects the changes to the tax system which were highlighted in the strategy paper to provide welcome support to the BioMedTech companies we help.
These changes include significant improvements to the R & D tax relief scheme including:-
• Boosting the tax deduction for R & D spend to 225 per cent from April for companies with up to 500 employees
• Removing the cap that used to mean that the R & D cash credit could not exceed the amount of PAYE and NIC paid
• Looking at ways to give an ‘above the line’ tax credit for large companies.
We are also helping companies to develop strategies to maximise the benefit of the Patent Box, which is the new 10 per cent corporation tax rate for income derived from patents coming into effect from April 2013. This includes working with them to identify qualifying IP and revenue streams, reviewing where qualifying patents should be held, analysing the different bases for calculation, developing transfer pricing methodologies and tools for data collection for computing income and expenses at the various stages.
Another major area of tax enhancement is to the venture capital reliefs for investors. For example, there is a new Seed Enterprise Investment Scheme offering 50 per cent income tax relief, as well as capital gains tax advantages, for investment in very early stage companies.
Meanwhile, the Enterprise Investment Scheme itself has already been improved to offer a 30 per cent income tax relief. It is also being extended to companies with up to 250 employees (subject to EU state aid approval), and will allow individuals to invest up to £1m, from April. However, for all the improvements, the EIS relief remains complex and companies will benefit from using experienced advisers to help them avoid the pitfalls.
The joint MRC/TSB £180m Biomedical Catalyst Fund will be of particular benefit to SMEs and start-ups. The fund is specifically designed to fill the ‘valley of death’ funding gap for pre-revenue SMEs. There has been little further news since the fund was announced, but any company hoping to benefit from either government funds or private investment will need to convince potential investors of the validity of its technology, the market opportunity, the strength of the management team and the viability of its exit plan within a relatively short time frame.
BDO has assisted many companies in the preparation of a business plan and financial model to present to potential funders and in the later stages of the business life cycle has helped prepare many companies plan for sale or flotation. BDO has extensive experience of advising private and listed companies, investors, universities and their spin-outs in the BioMedTech sector, both nationally and internationally.
• If you feel this experience would be of benefit to you please contact Tim Ferris (T: 01707 255 955).