For those running a pharmaceutical business, tax efficiency should be a priority. It may be that you have a number of levers to pull in order to optimise your liabilities, while staying on the right side of the law. Let’s consider five effective strategies and habits worth considering.
Optimising R&D Tax Credits
If your company pays (or at least, is chargeable to) Corporation Tax, and it innovates in the field of science and technology sectors, then it might qualify for R & D tax credits. This means that your business is probably doing plenty of activities that might prompt it to apply for these credits, ranging from manufacturing to clinical trials.
Make sure that it’s all documented, and claim the costs back. Expert healthcare accountants will be able to help you do this.
Understanding VAT on Pharmaceutical Products and Services
Several kinds of drugs are VAT-exempt in the UK and in other territories, too. In order to actually receive this benefit, however, you’ll need to ensure that the medicines you’re selling are appropriately categorised. Recently, the rules have shifted to account for online sales of over-the-counter medicines, which makes a proper accounting of your sales even more essential.
Optimising Inventory Management for Tax Benefits
Unsold stock can impose a tax burden, even if it’s expiring. To stay on top of your inventory, you’ll need to use an appropriate accounting method. The FIFO method assumes that the first unit in is the first one sold, while the LIFO method assumes that the last unit to arrive is the first one sold. For perishable goods, the former method is appropriate.
Bear in mind that, when drugs expire, they can often be classed as an inventory write-off, whose value can be deducted from your income for tax purposes.
Effective Transfer Pricing in Global Pharmaceutical Operations
If your company stretches across national boundaries, then it will need to contend with something called transfer pricing law in the UK. This involves the ‘arm’s length principle’, which relates to transactions between sister companies in different parts of the world. It’s there to prevent companies from shifting their assets to one another in order to drive down their tax bill. In principle, transactions between companies that share a common owner are taxed according to the profit that might have been generated by two independent parties in market conditions.
Tax Planning for Mergers, Acquisitions, and Partnerships
It might be that you’re looking to expand through acquisition, or be acquired yourself. This can have significant tax implications – which is often a good reason to go through with the procedure in the first place. Careful planning through the process will allow the companies involved to reduce their liabilities. This goes especially for pharmaceutical companies, for whom mergers are often a means of acquiring the intellectual property of another company, as well as its buildings and machinery.
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