UK: Budget 2012 - Impact On The Lifesciences Sector

Last Updated: 27 March 2012
Article by Samantha Dames, Henry Bolton and Isabel Pooley

The Budget included good news for the lifesciences sector. While nothing groundbreaking was announced, in general it maintained the course set in the previous year and many positive announcements were made. Importantly the Government restated its commitment to the sector and to its important role in the UK economy.

The main announcements of interest to the Lifesciences sector from the Budget are as follows:

Commitment to science investment

The Chancellor confirmed the ring-fence on science spending for this year and announced that a new £100 million fund is to be made available. The fund will allocate its first bids in 2012–13. The policy purpose of the fund is to support investment in major new university research facilities. The Government intends that the fund will attract additional co-investment from the private sector.

Patent Box

The Government announced as part of its Corporate Tax Road Map in late November 2011 that as of 1 April 2013 a 10 per cent reduced rate of corporation tax for profits attributed to patents and other intellectual property profits will be introduced (see our Patent Box Zone). A few small changes to the proposed regime were announced in the Budget:

  • draft legislation will be amended to make it clear that it will apply to worldwide income from inventions covered by a UK or EPO patent;
  • the heads of expenditure which have to be marked up will be clarified;
  • the small claims harbour will be increased from £1 million to £3 million; and
  • a list of qualifying patent jurisdictions (broadly other EU countries with similar examination and patentability criteria as the UK) will be published as secondary legislation this year.

Unfortunately companies performing processes or providing services will still be taxed on an arm's length royalty basis and are therefore likely to remain at a disadvantage to companies producing products.

Business Measures

Corporation Tax – the Chancellor renewed the Government's commitment to improving the attractiveness of the UK to foreign investors by reducing the main rate of corporation tax by an additional 1 per cent from April 2012 (i.e. 24%, 23% from April 2013 and 22% from April 2014). This reduction will give the UK the lowest corporation tax in the G7 and the fourth lowest in the G20.

Research and Development tax credit – from April 2012 a new 'above the line' tax credit will be introduced with a minimum rate of 9.1 per cent before tax. Loss-making companies will be able to claim a payable credit. The Government stated it will consult on the detailed design of the credit shortly after the Budget and final rates, including for the payable credit, will be decided following consultation in the Finance Bill 2013.

As announced in the 2011 Budget, from 1 April 2012 the rate of R&D tax credits for small and medium enterprises (SME) will increase to 225 per cent; the limit of SME payable credit, based on their PAYE/NICs liability, will be removed; and the £10,000 minimum expenditure requirement for large companies and SMEs will be abolished.

Controlled Foreign Companies (CFC) rules – first announced as part of the Corporate Tax Road Map the Government will introduce new CFC rules that better reflect the way that businesses operate in a global economy. The rules include a finance company partial exemption that in broad terms will result in an effective UK tax rate of one quarter of the main rate on profits derived from overseas group financing arrangements. The new rules will be effective for CFCs with accounting periods beginning on or after 1 January 2013.

National Loan Guarantee Scheme (NLGS) – on 20 March 2012 the Government launched NLGS to provide up to £20 billion of guarantees to banks on their unsecured debt in return for a fee. The purpose of this is to make it cheaper for participating banks to borrow so that the banks will pass on the benefit they receive to small businesses. Businesses that take out an NLGS loan will receive a discount of 1 percent on the interest rate they would have received from the bank if the loan were made outside of the scheme.

Business Finance Partnerships – in the Autumn Statement the Chancellor announced that the Government would make available £1 billion to businesses as finance from a non-bank source. In the Budget he announced that the Government is increasing the funds available to £1.2 billion and that it intends to invest up to £700 million with up to seven of the shortlisted fund managers.

Calculation of tax for small or unincorporated businesses – it was announced that for small or unincorporated businesses tax will be calculated on a cash basis from April 2013. The policy behind the measure is to improve efficiency for smaller start-up businesses.

Enterprise loans – later this year the Government will pilot a scheme aimed at encouraging young people to set up their own businesses. It is hoped that this will build on the National Enterprise Allowance and will act as an incentive to increase the number of start-ups in the UK.


For smaller companies able to grant tax-favoured enterprise management incentives ("EMI") options, there is good news. The maximum value of shares over which EMI options can be granted will more than double from £120,000 to £250,000. The increase is subject to State-Aid approval and so it is not clear when the increase will take effect. An EMI option package over up to £250,000 of shares will certainly be a valuable incentive for anyone joining this kind of company.

The Government has also announced that from 2013, subject to State Aid approval:

  • any shares acquired on the exercise of EMI options on or after 6 April 2012 will be eligible for entrepreneurs' relief and so potentially be subject to capital gains tax at the lower rate of 10%; and
  • it will consult on ways in which academics who are employed by a qualifying company, but do not meet the qualifying employee requirements, can participate in the EMI scheme - this will be an important extension for spin-out companies.

Further details on the proposed changes are expected in due course.

Health and Safety legislation

The Government announced that it will scrap or improve 84 per cent of Health and Safety regulation. Additionally the Government will rationalise environmental regulation and will launch sector-based reviews of regulation to ensure it is enforced at the lowest possible cost to business, starting with chemicals manufacturing, volunteer events and small businesses in food manufacturing.

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 22/03/2012.

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