2020 Budget: Life Sciences

2020 Budget Life Sciences

Budget 2020 was dominated by COVID-19 but included several important measures for Life Sciences on a range of areas including R&D tax credits and Entrepreneurs’ Relief. The significant points of relevance are set out below.

It was announced that £200 million is being made available for a new dedicated equity investment programme that, invested alongside private sector capital, is expected to enable £600 million of investment to support life sciences companies that will launch within a year.

The OxCam Arc has been designated as a key economic priority with specific reference to the building of a new train station at Cambridge South to improve connectivity to the Cambridge Biomedical Campus.

R&D Expenditure Credit Rate Increase

The Government has announced the increase of the R&D Expenditure Credit (RDEC) rate from 12% to 13% for qualifying expenditure incurred on or after 1 April 2020.


The rate increase for the RDEC shows the Government’s intention to support businesses carrying out R&D activities and helping to drive scientific and technological innovation.

It will be welcomed by large companies who fall under the RDEC although there had been a call from the sector to increase the rate to 15%. It will also be welcomed by those SMEs who carry out subsidised R&D and those carrying out R&D that is sub-contracted to them by other companies (as long as those other companies are not SMEs claiming the SME R&D tax credit).

Consultation on R&D Qualifying Expenditure – Data & Cloud Computing

The Government will consult on whether qualifying R&D expenditure should include data and cloud computing.


We have lobbied for the inclusion of data as qualifying expenditure since we identified the gap in the legislation in 2016. We will continue to work closely with the Government and other parties in preparing a response to the consultation in order to try and ensure that data and cloud computing are included. Furthermore, we will request that the definition of data extends to a clinical studies report.

As the sector increasingly generates and uses data in R&D it is anticipated that this will become a material cost in the undertaking of R&D for certain companies and so the consultation should be welcomed.

Preventing Abuse of the R&D Relief for Small and Medium-Sized Enterprises

As announced in the Autumn Budget 2018, a PAYE/NI cap was due to be reintroduced for SME R&D tax credits from April 2020 in order to counter perceived avoidance. This was set at three times the company’s total PAYE and National Insurance contribution payment for the accounting period. The Government announced that the introduction of the cap will be delayed until 1 April 2021.

The Government says it has listened to industry and will also consult on changes to the cap’s design, to ensure it targets abusive behaviour as intended while ensuring that eligible businesses are able to access the relief.


We have worked closely with the BIA and HMRC officials to ensure that the life sciences sector is not adversely impacted by the cap, in particular companies working on a virtual/outsourced model and those in clinical development where significant sums are paid to clinical research organisations. We are pleased that the Government has taken the initial consultation feedback onboard and expect a remedy that should ensure that the majority of these companies will not be impacted.

Externally Provided Workers – Impact of IR35

HMRC has announced amendments to the externally provided workers provisions to ensure that companies can continue to claim the same amount of relief for expenditure on R&D such that they are not affected by the changes to be made to IR35. This change is confirmed by HMRC and not mentioned in the Budget document.


We would not anticipate the change to IR35 would impact the ability to include externally provided workers costs in R&D claims and are pleased that HMRC has confirmed this.

Entrepreneurs’ Relief – Reduction in Lifetime Allowance

As was widely anticipated, Entrepreneurs’ Relief has been scaled back. The overall lifetime limits for gains to which the relief can apply will reduce from the current £10 million to £1 million per person with immediate effect.


There were suggestions that Entrepreneurs’ Relief might have been abolished completely, therefore even a dramatic restriction in the available relief may be viewed as good news by some. However, individuals with very large investments which would otherwise have qualified for relief will see their capital gains tax rate on disposal potentially double, to 20%.

The Government previously restricted the availability of Entrepreneurs’ Relief through a number of changes in the 2018 budget but left the limit for gains to which the relief can apply intact at that time.

The new restriction in the relief will mean that individuals who have already used Entrepreneurs’ Relief for gains of at least £1 million will no longer be able to benefit, whilst others will have the maximum amount of relief capped. The Chancellor reported that, according to HMRC data, over 80% of individuals using the relief will remain unaffected.

The changes follow a report in May 2017 by IFF Research for HMRC which highlighted that only around 1 in 6 individuals were aware of Entrepreneurs’ Relief at the time of their initial investment and only half of these individuals declared that the availability of the relief influenced their decision to invest.

Corporation Tax Rate – 19%

The Government has announced that it will retain the current 19% corporation tax rate in April 2020.


As expected, the Government has scrapped plans to reduce the corporation tax rate to 17% at least until 31 March 2021. On the basis that legislation is going to be introduced in Finance Bill 2020 to set the rate at 19%, it is unlikely to be substantively enacted by 31 March 2020. Therefore, the 17% rate continues to be the substantively enacted rate, so deferred tax provisions should continue to be calculated on this basis.

Intangible Assets Acquired from Related Parties

The Government has announced that it will remove the exclusion of pre-2002 assets that were not previously within the corporation tax regime and acquired from related parties from the IFA regime subject to transitional rules to counter avoidance. From 1 July 2020, the cost of acquiring such intangible assets will be provided under a single regime, whether they were created or acquired before or after 1 April 2002. There will be no change to the treatment of pre-2002 assets that were already subject to corporation tax.


For Pre-FA 2002 corporate intangibles that are on-shored from related parties from 1 July 2020, corporation tax relief will be available through the IFA regime for the cost of acquiring these assets. This measure will support UK investment in intellectual property and other intangible assets and builds on the reforms in Budget 2018 where the Government removed degrouping charges on intangible assets.

Structures and Buildings Allowances

The rate of annual allowance will be increased to 3% from 2% from 1 April 2020 for corporation tax (and 6 April 2020 for income tax). SBA will be available at the new 3% rate for any non-residential building or structure brought into qualifying use where contracts for construction works were entered into on or after 29 October 2018. The new rate will also be available to businesses that were entitled to SBA on building and structures brought into use between 29 October 2018 and 1 April 2020. Where a chargeable period spans the date of change, SBA may be claimed at the 2% rate per year for days before 1 April and 3% for days thereafter. Some technical amendments are also being made to the legislation. They include changes to prevent double relief where research and development allowances are available and allow claims to SBA on contributions to expenditure incurred by a public body, both of which have effect from 11 March 2020. The remaining minor amendments are deemed always to have effect.


The increase in the rate of annual allowance to 3% from 2% was expected. It reduces the period over which the allowance is given from 50 years to 33 years, which is closer to the typical life of a modern commercial building. However, it does not address a fundamental design flaw which means that, absent any balancing allowance, a tenant holding a 5 to 15 year lease will only obtain a deduction for 15 to 45% of their SBA qualifying expenditure, unless they extend or renew their lease.

Plastic Packaging Tax

Following the announcement at Budget 2018 of a Plastic Packaging Tax, it was announced at Budget 2020 that a further consultation will be launched on the detailed design and implementation of the legislation which will be introduced in Finance Bill 2020-21 prior to the tax being effective from April 2022. As Part of Budget 2020, it was confirmed that a tax of £200 will apply per tonne of plastic packaging which does not contain at least 30% recycled plastic. The provisions apply equally to packaging produced in the UK or imported into the UK (including filled plastic packaging). The tax will only apply to businesses above the de minimis limit which is currently set at 10 tonnes.


The consultation looks at the potential exemption of medical packaging and we would encourage companies who might be impacted to provide responses.

Enterprise Management Incentives (EMI) Review

The Government has announced a review of the EMI share options scheme, in particular to consider whether to broaden access to the scheme to help high growth companies attract and retain talent. Currently the ability to grant EMI options is available only to businesses with less than £30 million of assets and fewer that 250 (full-time equivalent) employees on a group basis.

EMI schemes allow employees to be granted up to £250,000 worth of share options with significant tax advantages.


Any potential to widen the scope of EMI schemes is likely to be welcomed by small and start-up businesses who often use the scheme as an important method of retaining and incentivising key individuals, especially in situations where there may not be sufficient cash to provide bonuses and other market rate compensation.

Off-payroll Working (IR35)

As previously announced, the extension of the off-payroll working rules to medium and large businesses in the private sector will go ahead from 6 April 2020. These rules will impact medium and large businesses who use the services of contractors but engage them through their personal service companies (PSCs).

Businesses will need to assess whether the contractor would have been considered as an employee for tax purposes had they engaged them directly. If this is the case, the business will need to operate payroll withholding on all payments to the PSC for services provided from 6 April 2020. This will include PAYE deductions for income tax and National Insurance together with payment of employer’s National Insurance and, where relevant, the apprenticeship levy.

Following a recent review of implementation measures, it has been agreed that HMRC will take a “light touch” approach to enforcement and penalties for the first year (i.e. the tax year ending 5 April 2021).


This represents a major change for any medium and large business that engages contractors via a PSC. Although previously announced, many businesses will still have a huge amount of work to complete prior to 6 April 2020. Every impacted business will need to review all their contractor engagements, including those with agencies in the chain, on a case-by-case basis. Official status determination statements will need to be completed and provided to all relevant PSCs by 6 April 2020.

Pensions Income Tax Relief

The Chancellor announced two main changes, effective 6 April 2020 – firstly, the two thresholds for individuals to be affected by the pensions annual allowance tapering will be raised by £90,000 and, secondly, that the minimum pensions annual allowance (after tapering) will be reduced from £10,000 to £4,000.

This means that the “threshold income” limit increases from £110,000 to £200,000 and the “adjusted income” limit increases from £150,000 to £240,000.

In line with inflation the lifetime allowance will increase from £1,055,000 to £1,073,100 from 6 April 2020.


The increase of both thresholds by £90,000 will mean that only individuals with a threshold income of over £200,000 for 2020-21 and onwards have the potential to be impacted and only individuals with an adjusted income of over £240,000 will have their annual allowance tapered. This will undoubtedly have the effect of taking many people out of the taper and may be especially relevant for individuals who have generous employer contributions, or defined benefit schemes, and whose total net taxable income is no more than £200,000.

The restriction in the annual allowance means that the highest earners, who have adjusted income above £300,000 will not be able to put as much money into their pension tax efficiently as before.

Employment Allowance

The Employment Allowance will be increased from £3,000 to £4,000 from April 2020.


The Employment Allowance allows eligible employers to reduce their National Insurance bill, up to the lower of the Class 1 National Insurance paid and the Employment Allowance. Originally available to most employers, the Government previously announced that, from 6 April 2020, it will only be available to employers who have a total employer’s National Insurance liability of below £100,000.

Whilst the previously announced restriction will rule out many employers, those who are eligible will receive an extra £1,000 of relief. It is important for employers to note that they need to consider the total National Insurance liability of payrolls across all connected entities to determine if they are eligible and, if so, ensure that only one entity makes the claim, where relevant.

Overview of Coronavirus Measures

Beyond the announcements relating to how Government is to support public services in dealing with the outbreak, including a £5 billion response fund for the NHS, several measures were announced to support individuals and businesses, SMEs in particular, during this economic downturn.

The measures announced to support individuals include:

  • Statutory Sick Pay (“SSP”) – The Government previously announced that SSP will be available for eligible individuals from day 1 of illness, removing the usual “waiting period” that meant SSP started on day 4 of illness. Additionally, SSP will now be extended to cover individuals who cannot work due to the requirement for self-isolation.
  • Universal Credit and Employment and Support Allowance – Individuals who are not eligible for SSP (such as the self-employed) will be able to claim Universal Credit or Contributory Employment and Support Allowance more easily.

The measures announced to support businesses include:

  • Statutory Sick Pay – Eligible SSP costs will be refunded with the eligibility criteria being:
    • Limited to two weeks per employee
    • Employers with fewer than 250 employees will be eligible. The size of an employer will be determined by the number of people they employed as of 28 February 2020
    • Employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19
    • Employers should maintain records of staff absences, but should not require employees to provide a GP fit note
    • The eligible period for the scheme will commence from the day on which the regulations extending SSP to self-isolators come into force
    • While existing systems are not designed to facilitate such employer refunds for SSP, the Government will work with employers over the coming months to set up a repayment mechanism for employers as soon as possible
  • Business Rates Reliefs – further reliefs have been announced although these only apply to the retail, leisure and hospitality sectors.
  • Small Business Grant Funding – small businesses that are eligible for the Small Business Rate Relief (SBRR) will receive £3,000 to help meet their ongoing business costs.
  • Time to Pay – HMRC have set up a dedicated COVID-19 helpline to help those in need, and they may be able to agree a bespoke Time to Pay arrangement. These tailored arrangements will give a business the time it needs to pay HMRC to support their recovery while operating through any temporary financial challenges that occur. HMRC will also waive late payment penalties and interest where a business experiences administrative difficulties contacting HMRC or paying taxes due to COVID-19.
  • Coronavirus Business Interruption Loan Scheme – the Government will launch a new, temporary Coronavirus Business Interruption Loan Scheme to support businesses to access bank lending and overdrafts. The Government will provide lenders with a guarantee of 80% on each loan (subject to a per lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The Government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £1.2 million in value. This new guarantee will initially support up to £1 billion of lending on top of current support offered through the British Business Bank.

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