Leveraging tax, talent and funding opportunities for HealthTech businesses

The accountants, tax and business adviser MHA MacIntyre Hudson keeps its finger on the pulse to support the healthcare technology sector, as Jason Mitchell, Partner and the firm’s Head of Technology, explains.

The Covid-19 pandemic and its rapid vaccine rollout brought HealthTech further into the spotlight, particularly the use of technology to speed up the development of new drugs and treatments. For businesses in the sector, huge rewards are usually the result of taking enormous financial risks, often taken during the early stages of milestone breakthroughs.

While HealthTech companies grab the headlines with their success stories there is plenty of hard graft from others going on almost unnoticed behind the scenes. Accountants and tax specialists, for example, ensure vital corporate life support opportunities, like funding, talent retention and tax breaks are maximised.

MHA supports a broad spectrum of HealthTech clients, including medical technology, pharmaceutical and life sciences businesses. These range from small start-ups and mid-sized businesses to the UK-based subsidiaries of large multinational parent companies.

The firm has a 13-strong national team covering the sector comprising specialists in tax, audit, funding, and employee benefits, with offices in Maidenhead, the Thames Valley, London, the South East, Midlands and North West. As an independent member of the Baker Tilly International (BTI) business advisory network, it works closely with experts from the US to India and across Europe, notably Belgium, Germany, and the Netherlands, where Life Science Industry is well established and pioneering.

KEY CHALLENGES IN THE SECTOR INCLUDE:

Innovative funding options

Many companies are keen to seek funding outside the usual traditional sources, for example, through crowdfunding. These platforms can provide important access to essential funding for younger businesses that are still developing their technologies.

Accessing funds directly from customers is also increasingly evident in the sector. This is more likely when a company is developing products specifically for one or two major customers, who have funds available to invest plus a vested interest in achieving a successful outcome.

A recent example is Reading-based Occuity, the 2022 Thames Valley Tech Awards’ Start-Up of the Year, who MHA has worked with for several years. The company’s product, a non-contact handheld pachymeter, screens for diabetes and the business has grown from two to nearly 40 people in just a few years.

Grant income opportunities

The availability of grant income as a form of funding can often be overlooked but can provide a significant financial boost. MHA has strategic partnerships with specialists who monitor the availability of grants and help businesses through complex application processes. One of the best-known providers of grant funding and loans is Innovate UK, which is part of UK Research and Innovation but there are many other less publicised grants available to support specific projects.

Navigating R&D tax credits

Applying for Research and Development (R&D) tax credits can be a bit of a minefield, but it is worth the effort to access the major financial incentives offered by the Government to innovators. Small and medium-sized companies with fewer than 500 employees and annual turnover below €100 million or a balance sheet under €86 million can claim the relief. It allows a 130% deduction of their qualifying costs from their annual profit in addition to the normal 100% deduction – giving a 230% benefit in total! However, from 1 April 2023, the 130% rate will be reduced to 86%, so companies that are interested in receiving the relief should act now.

Although the amount of R&D tax relief provided by the Government fell 4% to £6.6 billion in 2020/21 (in part, as a result of the Covid-19 pandemic), the number of claims rose 7% to 89,300, driven by an increasing number of claims from small and medium-sized companies.

In the R&D world, businesses need to keep up-to-date with changing HMRC rules, for example, UK-based HealthTech companies with overseas development teams may find not all of their costs are eligible, while a wider range of cloud computing costs are now becoming eligible for tax relief.

Managing transfer pricing

Transfer pricing is the accounting practice used by multinational companies to show the profits delivered by their subsidiaries in different countries depending on the commercial role of that subsidiary. Many HealthTech companies are global with operations in the UK, where cross-border transactions between operating companies can have a significant impact on the tax they pay, particularly as each country’s tax authority will potentially challenge whether the level of profitability reported is a fair reflection of the commercial activity in their territory.

Tax authorities are keen that tax is fairly apportioned and so the rules on what has to be paid and where are complex. HealthTech companies need to have a clear understanding of what each of their business units does and how they account for their profits to avoid falling foul of local tax laws. For example, companies operating on both sides of the Atlantic should keep abreast of changes in both IRS and HMRC regulations.

On 19 January, the firm will be hosting a free one-hour webinar – The Baker Tilly International Life Sciences Forum. This will be a panel discussion covering the compliance, tax and legal considerations for HealthTech businesses that are exploring investing in the UK or expanding cross border outside the UK. You can register here. 

Incentivising top talent

Behind every technological breakthrough are highly skilled and dedicated people. Like the technology sector in general, in HeathTech the top brains are in relatively short supply, so the fight to attract and retain the most talented employees is intense.

A company’s ability to hold on to its talent often centres on offering enticing remuneration packages. MHA MacIntyre Hudson’s dedicated team specialising in remuneration planning advises on a wide range of tax reliefs and share option schemes. For example, government-backed employee share schemes with tax advantages include share incentive plans, company share option plans and enterprise management incentives. Rewards to incentivise and boost employee loyalty are typically structured around performance milestones or positive share price movements.

ESG focus

Given the nature of what they do, HealthTech businesses have to be in tune with the latest ESG priorities. After all, their products and services deliver important public and environmental health benefits. It is important that businesses demonstrate their adherence to ESG, from supporting employees and communities to the rigorous assessment of companies in their supply chain.

MHA has years of experience advising clients on regulatory ESG disclosure requirements. For those corporates large enough to be directly impacted by the legislation relating to disclosure of policies, it conducts extensive ESG assessments during the usual financial audit cycle to help make sure clients know what they need to do and act in the right way.

Post-Brexit and globalisation

While many of the duty and VAT uncertainties surrounding Brexit have now largely been understood and tackled by businesses, the UK’s departure from the European Union still poses challenges for the cross-border movement of goods and people. The firm has been highly active in this area for healthcare sector clients.

In addition, its membership of BTI gives the firm access to a wealth of experience, especially from the US, in international drug and research development activity.

MHA views HealthTech as a very exciting sector where dynamic new developments are constantly coming through R&D pipelines. The firm’s role is to help businesses gain a more solid financial footing that brings their innovative ideas to life, as well as take advantage of tax support to drive them forward.

For more information about MHA  – visit www.macintyrehudson.co.uk

and to learn more about how the firm supports the HealthTech sector – email Jason Mitchell at [email protected]