Expert Insights

Expert Insights

Some key takeaways from the draft legislation for Finance Bill 2022-23

In July 2022, the government published draft legislation ahead of potential inclusion in Finance Bill 2022-23.  A number of these measures will impact on the life sciences sector, including in particular R&D tax relief reform, draft legislation for the implementation of the OECD Pillar 2 reforms in the UK and a new requirement relating to transfer pricing documentation.  Some of the most important aspects of the changes are briefly explained below.

Research and development

The UK research and development (R&D) tax regime enables sectors such as life sciences to thrive and provides an important incentive to businesses to invest in research and development.

At Budget 2021, the government announced a number of measures that will take effect for accounting periods commencing on or after 1 April 2023 in respect of R&D tax relief.  Draft legislation was published on 20 July 2022 and life sciences businesses should ensure that they understand the implications for them.

One of the most important changes is the focusing of R&D relief for subcontracted work and the cost of externally provided workers to activity in the UK.  The expenditure must now be UK or qualifying overseas expenditure in order to be eligible for relief.  This means expenditure that is attributable to relevant R&D undertaken in the UK or that certain conditions are necessary for the purposes of the R&D that are not present in the UK and which it would be wholly unreasonable for the company to replicate in the UK.  This exception is very narrowly drawn, and a number of businesses are likely to be affected by this change.

The process for making claims will also be changing.  All claims will in the future be required to be made digitally and those claims will be required to provide a breakdown of the expenditure into various categories.  The claim will need to be endorsed by a senior officer.  Claimants will also be required to notify HMRC at least six months prior to the end of the period to which the claim relates that they intend to claim, unless they have claimed in one of the three preceding accounting periods.  Life sciences businesses should ensure they adjust their administrative systems well in advance of the changes coming into effect.

There are a number of other changes, including in relation to time limits and providing a smoother transition for companies moving from the SME scheme to the research and development expenditure credit scheme for larger groups.

OECD reforms

Pillar 2

This measure implements a new tax on UK parents of large multinational groups.  It will impact groups with UK activities where in at least two of the previous four accounting periods, annual global revenues of the group were in excess of EUR 750 million. 

Where the parent entity of the group is in the UK, it will be liable for additional tax where any non-UK members in the group do not bear tax on their profits at a rate of at least 15%.  Complex provisions apply to the computation of profits and losses and the effective tax rate.

Transfer pricing documentation

Draft legislation has also been published relating to the transfer pricing documentation requirements applicable to large multinational groups, following earlier consultation.  The new requirements will provide for master file, local file and summary audit trail questionnaire documents to be kept.  The master file will contain information relating to all of the group members and the local file will relate to transactions for the local taxpayer.  The summary audit trail will require the group to complete a questionnaire in respect of the preparation of the local file document.

For more information on the above please contact Helen Coward or your usual Charles Russell Speechlys contact.

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