UK: Reform Of Corporation Tax For Lifesciences Companies - A Chance To Have Your Say

Last Updated: 26 January 2011
Article by Nick Beckett and Samantha Dames

Lifesciences companies have until 22 February 2011 to respond to a Government consultation on a number of important reforms to UK corporation tax which could have a significant impact on the sector.  As part of its "Corporate Tax Road Map", the Government seeks industry views on introducing a "patent box" regime, reforming the controlled foreign company (CFC) rules in relation to IP companies, and changing tax credits available for research and development (R&D).

The Government's stated aim is to provide a more competitive tax system, with a particular emphasis on activities related to scientific and high-tech IP. 

The patent box

A patent box regime allows profits arising from patents to be subject to tax at a lower rate than general corporate profits.  This is a new concept in UK corporation tax, and is intended to apply from 1 April 2013.  The suggested rate of tax for patent income is 10% – much lower than the current 28% rate of corporation tax.

The idea of a UK patent box was first announced in the Pre-Budget Report 2009.  The Government recognises that IP is mobile and that multinational groups have a choice as to where to locate their IP ownership.  The aim of the patent box regime is to try to encourage companies to locate their IP in the UK. 

The key beneficiaries of the patent box regime will be the UK's pharmaceutical and biotech sectors.  Government is keen to engage with businesses that may be affected to try to understand what the behavioural impact of this reform might be.  In addition, we would encourage companies in the lifesciences sector to have their say while this consultation is open, as a number of important issues have yet to be resolved.

One key area of uncertainty is how profits from a patent income stream will be calculated where the value of a patented innovation is captured in a product sale price rather than through a discrete royalty.  Other points on which lifesciences companies may wish to have their say include whether income from foreign patents, acquired patents and patent pending innovations should qualify for the lower rate of tax.

Controlled Foreign Companies (CFCs)

The UK's CFC rules seek to prevent international groups from reducing UK corporation tax by diverting profits into subsidiaries in a low tax jurisdiction.  Many multinationals feel that these rules go much further than is necessary to tackle this type of avoidance, and that "innocent" overseas activity can be caught, unfairly increasing the tax bill for groups based in the UK.  For example, lifesciences companies can face a CFC charge on profits that arise from IP that was developed entirely outside the UK – a huge disincentive to locating the top company in the UK.
It is proposed that the existing CFC regime will be replaced in the Finance Bill 2012.  The Government has specifically been looking at how this can be applied fairly in relation to IP.

As an interim measure – to be introduced in the Finance Bill 2011 – there will be an exemption for CFCs whose main business is to exploit IP where both the IP and the CFC itself have a minimal UK connection. 

The suggested approach for the fuller reform in 2012 is that the focus will be on "high risk" IP-holding CFCs which have excessive profits in relation to the activities they have undertaken.  In particular, where IP is developed in the UK, effectively managed in the UK, or funded from the UK, but in either case held offshore, a UK CFC charge may be imposed in relation to profits that are seen as artificially diverted from the UK.

R&D tax credits

R&D tax credits provide an incentive to companies to invest in research and development by allowing a generous tax deduction for R&D expenditure.  Under the current rules, small and medium size enterprises (SMEs) are entitled to tax relief at 175%, and larger companies at 130%, on qualifying expenditure.  In other words, for every £100 spent by an SME, taxable profits are reduced by £175.  A cash payment from HMRC of up to 24.5% of qualifying expenditure can be claimed by SMEs that are in a loss making position. 

Since their introduction in 2000, R&D tax credits are said to have supported nearly £52bn of R&D activity by UK companies.  While it recognises that the regime is popular and widely used, the Government is considering whether the R&D credit system could be improved, and says it welcomes views on any suggested changes that could affect the impact or delivery of the schemes.  Possible areas for reform include the types of costs that are eligible for relief, the definition of R&D, the claims process and a greater focus on start-ups and the smallest companies.

One feature of the current rules that can produce anomalies is the cap on R&D cash payments at the total amount of payroll taxes (i.e. PAYE and NICs) paid by the company.  This can put companies which subcontract a significant amount of the R&D work at a disadvantage.  If businesses want to raise this or any other issues in relation to R&D tax credits, responses to the consultation can be made up until 22 February 2011.

Further information

Details of the Corporate Tax Road Map and the consultations described above can be found by clicking here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/01/2011.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.