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The HMRC has published their draft legislation for the proposed introduction of a new VAT Flat Rate of 16.5% for ‘Limited Costs’ businesses to tackle what they perceive as abusive use of the scheme.
The target of the legislation are labour-intensive businesses with little expenditure on goods such as contractors, consultants and accountancy firms. However, this may prove the catalyst for a digital transformation to make the capture of VAT data straightforward.
The VAT Flat Rate Scheme was introduced in 2002 to simplify VAT and reduce the administrative burden on small businesses. Instead of paying across the VAT on sales and recovering the VAT on purchases, the business can apply a percentage to their gross revenue based on their trade sector.
Take an IT contractor with a net turnover of £100,000. Currently, the VAT Flat Rate is 14.5% which is applied to the gross sales. As a result, £20,000 of VAT would be charged to the clients but only £17,400 (14.5% of £120,000) paid to the HMRC. The remaining £2,600 is kept by the company in lieu of the VAT on purchases.
From 1st April 2017, if the IT contractor falls under the new VAT Flat Rate of 16.5%, £20,000 of VAT would still be charged to the clients but now £19,800 (16.5% of £120,000) is paid to the HMRC leaving £200 in lieu of the VAT on purchases.
A Limited Costs business is defined as a company whose VAT inclusive expenditure on goods is either:
In this context, goods must be used exclusively for the purpose of the business but will exclude the following items:
The description of capital expenditure goes beyond the normal accounting convention to include any goods which are bought to be used in the business over a period of time irrespective of the costs.
These exclusions are designed to prevent a company from buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%.
In the context of VAT, goods are tangible objects where the legal title transfers to the purchaser on acquisition. On this basis, expenditure on services are totally excluded.
Both businesses currently operating under the VAT Flat Rate Scheme and new businesses joining will be required to test whether they must use the new rate and the test must be repeated for each accounting period. The first-year discount of 1% will apply to new businesses registering under the 16.5% rate.
HMRC promise to introduce an online tool to assist in determining the correct rate. However, the past performance of similar online calculators leaves a doubt to the accuracy and consistency.
Although there is an eight-week consultation period, this seems more of a technical consultation on the implementation rather than an opportunity to modify the legislation.
CooperFaure will be making representations to HMRC to remove the exclusions on goods and to include expenditure on services incurred purely for business purposes. We are also seeking clarity on the treatment for VAT periods that straddle April 2017.
However, we are sceptical of there being any substantive amendments.
The consideration for labour-intensive businesses is whether the simplified administrative benefit of continuing to use the Flat Rate Scheme is greater than the financial loss.
The HMRC impact assessment indicates that they expect around 4,000 businesses to switch to standard VAT accounting. The compliance cost of switching to HMRC is estimated at £180 per business.
Our view is that HMRC have severely under-estimated the number of switchers. Take our IT contractor example who spends a very modest average of £420 per month on allowable business items that include VAT. That equates to an annual VAT recoverable of £840 compared to the £200 that the new flat rate is offering.
The key is making the process of recording and claiming this VAT as simple as possible. As a result, in the first quarter of 2017, CooperFaure will be evaluating digital platforms to make the capturing of this data as simple as a click of a button.
We will also be providing comparative analysis to our clients affected by this change to enable them to make an informed decision.
If you are uncertain of whether you will be impacted or would like advice on the best course of action, please contact us at tax@cooperfaure.co.uk to schedule an initial call to discuss this further.
This autumn, adventurer and film-maker Reza Pakravan and journalist Pip Stewart, embarked on an epic journey along the 4,000 km Transamazonian highway to document both the glory and the destruction of one of the planet’s last great untouched areas, the mighty Amazon rain forest.
Travelling the road by bicycle and the river by boat, their journey took the from the Atlantic to the Pacific crossing Brazil and Peru through some of the most remote and hostile places on earth.
The expedition was chronicled by a film crew to produce a documentary of their experience living with Amazonian tribes whose way of life is under severe threat. The majesty of the ecosystem and the humility of tribes juxtaposed with the relentless demands of the 21st century.
Laced with beauty and danger, the filming is complete and film is safely in London. A distribution deal is in place and Fox International has acquired the rights for Spanish-speaking territories with negotiations ongoing with BBC Worldwide and Sony Entertainment.
The production company, Transamazonica Limited, is now seeking investment funding for the Post Production to convert the film into a four-part series and theatrical film cut of what could literally be a last testament.
Underpinned by the Seed Enterprise Investment Scheme, which offers an immediate 50% tax relief, and based on the success his previous Kapp to Cape series, Reza Pakravan is able to guarantee an overall 10% return on your three-year investment. This is currently double the return of any Three Year Fixed Rate Bond on the High Street.
There are some non-financial returns too. Depending on the investment level, an investor will be given an Executive Producer or Associate Producer credit in the series. In addition, all investors will be invited to a special cinema screening followed by a private drinks reception where you will have the chance to chat to Reza and Pip about their adventures.
For further information, please contact us at tax@cooperfaure.co.uk in the first instance. However, you can unlock an exclusive Transamazonica trailer here.
The Seed Enterprise Investment Scheme (SEIS) was introduced in April 2012 as an offshoot of Enterprise Investment Scheme (EIS) specifically targeted at boosting early stage investment in start-up companies.
To this end, SEIS offers the investor some especially generous tax reliefs:
There are some key points to bear in mind on the SEIS scheme:
In deciding whether to invest, it is important to ascertain whether the company has applied for and received ‘Advanced Assurance’ from HMRC. This is a certificate issued by HMRC confirming that the company qualifies for the SEIS scheme.
The investor is able to claim the Income Tax relief once either the business has been trading for four months or has spent 70% of the investment they received.
At that point, the company submits Form SEIS1 to the Small Companies Enterprise Centre (SCEC) for review. Assuming all the requirements are met, the SCEC will issue a Form SEIS3 to the company to distribute to the individual investors for inclusion in their tax return.
The SEIS relief can be claimed up to five years after the 31st January in the year that investment was made. Indeed, it can also be carried back into the previous tax year.
Lastly, as with all tax reliefs, the availability and benefit depends on your circumstances. For instance, if you are not paying Income Tax, the SEIS relief is of no value.
As a result, we recommend seeking independent tax advice before proceeding with any investment.
At CooperFaure, we work with a portfolio of companies and investors operating under the SEIS and EIS schemes. If you would like an initial call to discuss your circumstances, please email us at tax@cooperfaure.co.uk to arrange a time. It is absolutely free and there is no obligation.
Please click here for the downloadable version of this guide.
We have received the HMRC definition of a ‘Limited Costs’ business for whom the new VAT Flat Rate of 16.5% will apply. This is outlined as a company whose VAT inclusive expenditure on goods is either:
In this context, goods must be used exclusively for the purpose of the business but will exclude the following items:
These exclusions are designed to prevent a company from buying either low value everyday items or one off purchases in order to inflate their costs beyond 2%. In addition, we can infer that expenditure on services are also excluded.
The government plan to publish draft secondary legislation on 5th December 2016 and businesses will then have an eight-week window to comment.
Our detailed review of the Autumn Statement will be published tomorrow. In the meantime, if you would like to discuss how the Autumn Statement will affect you, please email us at tax@cooperfaure.co.uk.
There is still time to register here for our Impact of the Autumn Statement webinar running on Monday 28th November at 1pm.
The new Chancellor of the Exchequer, Philip Hammond, has delivered his first Autumn Statement today.
In a significant change to small businesses, from April 2017, a new VAT Flat Rate of 16.5% will be introduced for businesses with limited costs, such as labour-only businesses. As the Flat Rate applied to the gross invoice amount, this equates to 19.8% of the net leaving just 0.2% for the business.
A provision is already in place to treat any invoice raised between today and 1st April 2017 for a service to be performed on or after 1st April 2017 as taking place on 1st April 2017. In other words, there is no opportunity to invoice in advance to keep the benefit of the current rate.
Other highlights were:
Our detailed review of the Autumn Statement will be published tomorrow. In the meantime, if you would like to discuss how the Autumn Statement will affect you, please email us at tax@cooperfaure.co.uk.
There is still time to register here for our Impact of the Autumn Statement webinar running on Monday 28th November at 1pm.
Back in January, in our two-part newsletter series on the impact of tax changes announced in the Summer Budget and the last Autumn Statement on the on the Buy-To-Let property sector, we indicated that this may not be the end of the changes.
We stated at the time that the then Chancellor, George Osborne, was looking at enabling the Bank of England to be able to impose curbs on the levels that lenders can offer loans to prospective private landlords.
As is being heavily reported in the press today, the Treasury has announced that they will empower the Prudential Regulation Authority, the lending arm of the Bank of England, to impose new minimum affordability thresholds and stress tests on Buy-To-Let mortgages from 1st January 2017.
A government spokesman stated “The Bank of England’s Financial Policy Committee (FPC) will be granted new powers by the government to help it protect the financial system from future risks in the buy-to-let mortgage market.”
Does this signal the end of the road for the individual investor? Will there be any good news in the Autumn Statement next week?
We will be publishing a detailed newsletter covering this on Sunday 26th November and running a new webinar on Wednesday 30th November for which we are offering exclusive advance registration here.
Welcome to the new era of accounting, it is no longer dull, boring and time consuming. Traditional accounting has been transformed into an innovative, modern and networking platform for businesses.
The government’s push to make tax digital by 2020 goes hand in hand with the cloud based accounting world that is emerging around us.
It is now possible to access your business accounts in the cloud from anywhere at any time. Social pressures and expectations are higher than ever. With the help of a cloud based accounting system you can travel the world, meet new people, be there for your family and friends and at the same time keep on top of your business from any device.
Making the choice to switch your accounts to a cloud based system will ensure that you are keeping up to date with the current generation’s expectation for information to be accessible at the click of a button.
We at CooperFaure are certified advisors and Gold Partners with the cloud based accounting software Xero.
Xero has more than 862,000 users worldwide and our clients are reaping the benefits:
Get more time to innovate with total visibility of your accounts, including cashflow, invoicing and online payments.
www.xero.com
Do you want to join the new exciting world of Xero?
Email us at welcome@cooperfaure.co.uk and let us show you real-time accounting.
In almost every tax year, a positive tax reform is introduced that just does not seem to get traction.
In 2015-16, this was the Marriage Allowance about which we have written extensively. This year, it looks to be the Trivial Benefit in Kind exemption.
As the festive season approaches, it is timely to examine this in detail. To qualify as a Trivial Benefit, there are four conditions;
For a ‘Close Company’, the annual amount is capped at £300.00 for the Directors and their families. A Close Company is defined as being privately owned and controlled by five or fewer individual participators. As a result, this covers most small companies and many family businesses.
If the benefit qualifies, it will not be deemed taxable income so no Income Tax nor National Insurance would be due.
There are two important considerations:
As a result, the Trivial Benefit in Kind exemption may be far from trivial, especially for lower paid staff.
The sort of expenses that would be considered a Trivial Benefit include:
There are a couple of points to be aware of:
If you have any questions or would like any further information on the Trivial Benefit in Kind exemption, please email us at tax@cooperfaure.co.uk.
In the main, social functions and parties provided by an employer for their staff are a taxable benefit on which Income Tax and National Insurance would be due.
However, under certain circumstances, the Annual Parties and Functions exemption would apply.
To qualify, the event or events must:
If your business operates from more than one location, an annual event open to all of your staff based at each location would qualify as exempt. Similarly, separate parties for different departments would qualify as exempt so long as each employee can attend one of them.
You could have a summer barbeque and a Christmas party that would both qualify so long as the combined cost of the events is no more than £150.00 per head.
However, it is key to remember that this is an exemption not an allowance. If the cost of a particular event exceeds £150.00 per head, the whole amount is taxable not just the amount over £150.00 per head.
If you are going to be arranging a staff Christmas party, bear in mind that all the associated expenses must be taken into account in calculating the cost. For instance, this could comprise the venue hire, theming, catering, entertainment, overnight accommodation or taxis home. In addition, the VAT must be included.
On the other hand, the £150.00 per head rule covers everyone that attends the party not just the employees of the company which is an important consideration in budgeting the event.
If you have any questions or would like any further information on the Annual Parties and Functions exemption, please email us at tax@cooperfaure.co.uk.
When an employer provides and pays for a taxi to take an employee home, this is a taxable benefit unless it subject to the Late-Night Taxi exemption.
To qualify for the Late-Night Taxi exemption the following stipulations must be met:
The key word in the stipulations is ‘irregular’ which means not following a regular or established pattern.
An employee who works later than usual and until at least 9pm every Friday or on the last Friday of each month, therefore, is not working later than usual irregularly. Neither is an employee that works later than usual and until 9pm on one variable day each week.
However, should a particular project or assignment necessitate an employee to work later than usual every day beyond 9pm for three weeks, this would qualify as irregular.
If you have any questions or would like any further information on the Late-Night Taxi exemption, please email us at tax@cooperfaure.co.uk.
Today is the last day of the HMRC consultations into Making Tax Digital. The deadline for submissions is 11:45pm tonight.
As the proposal stands every self-employed individual, partner and/or landlord with a combined income of over £10,000 will be required to file quarterly returns from April 2018.
This requirement will extend to Limited Companies from April 2020.
Self-employed businesses and landlords will need the tools to enable them to file digitally in a prescribed manner. Unlike with the current Self-Assessment Tax Return or RTI-compliant payroll, HMRC will not be providing free software for Making Tax Digital.
Instead, they are looking to the software providers to make available free software for the smallest of businesses as part of a basket products catering for the wider market. It seems, at best, the free software will only deliver the specific HMRC requirements, so some other form of bookkeeping software will be necessary to run in tandem.
The reality is that asking a business to report at least four times a year rather than once and being required to do so on a proprietary software can only add to the administrative burden and cost. Indeed, for more complex businesses, there will also be an ‘End of Year’ filing to review the four quarterly returns and make any necessary accounting adjustments or claim any reliefs and allowances not able to be included in the quarterly returns.
This has been recognised in the consultation which asks the questions “What level of financial support might it be reasonable for the government to provide towards investing in new IT, software or training?”, “What costs might you expect your business to incur in moving to the new regime?” and “Do you expect that your business will incur additional on-going costs as a result of these changes?”.
We urge every stakeholder to make their voice heard and take part in the HMRC consultation here. These questions fall under the ‘A: Bringing business tax into the digital age’. Our full response to the consultation can be read here.
At CooperFaure, we are have already implemented accountancy solutions to enable our clients to thrive in the digital age. We will also be participating in alpha testing with software providers and private beta testing with HMRC, that will enable us to keep you fully informed on every step of the journey.
We anticipate that the 2016 Autumn Statement on Wednesday 23rd November will reference Making Tax Digital with draft legislation expected in December. At CooperFaure we will be providing a live Twitter Feed on @cooperfaure together with digest and detailed newsletters on the day.
For the first time, on Thursday 24th November, we will be hosting a Free Webinar between 1pm and 2pm looking at the impact on business, the contractor and the property investor and answering your questions.
As well as expert advice and a free copy of the presentation, you can ask that nagging question in our Q&A session.
As ever, places are limited so to register and avoid missing out, please click on the button.
In the meantime, if you like any further information, please let email us at tax@cooperfaure.co.uk.
Over the last few days, the three of the most senior judges in the United Kingdom – the Lord Chief Justice, the Master of the Rolls and Lord Justice Sales – have presided over hearings in the Divisional Court that could potentially determine the timetable and, ultimately, the fate of Brexit.
The hearings were a judicial review into whether the Prime Minister has the authority to invoke Royal Prerogative to trigger Article 50 of the Lisbon Treaty or whether this requires the assent of Parliament.
The government took the unusual step of sending the Attorney General, Jeremy Wright QC, as part of their legal team.
Those seeking the judicial review argue that the referendum in June was merely consultative and, in itself, does not constitute a decision to leave. Instead, they contest that, as activating Article 50 effectively repeals the European Communities Act 1972 which was passed by Parliament, that this also requires approval by Parliament.
The government has countered that, as triggering Article 50 is concerned with ending a treaty with the other European Union member states, this is within the remit of prerogative powers. These are executive powers allowing the government to act without requiring recourse to Parliament and, it is argued, are the norm when making or ending international treaties.
Article 50 itself states that any member state may leave “in accordance with its own constitutional requirements”. The vagueness of this phrase has enabled both sides to promulgate differing interpretations.
The judges are expected to deliver their ruling within the next two weeks with the losing side almost certain to appeal.
A similar case is already awaiting judgement in Northern Ireland with the additional aspect of the devolution legislation which, it is contended, would prevent triggering Article 50 without consultation. Again, the losing side is expected to appeal.
Given the timeframe, the unusual measure has been adopted to allow these appeals to be made directly to the Supreme Court, bypassing the Court of Appeal.
In what could be the ultimate irony, it is entirely possible that the Supreme Court will defer to the European Court of Justice to interpret the meaning of “in accordance with its own constitutional requirements”.
The whole process is throwing out a raft of deeply complex constitutional questions the answers to which will determine when and, in reality, whether Article 50 will be activated.
All this against a backdrop of ongoing economic uncertainty that is beginning to have a tangible effect with inflation rising from 0.6% to 1.0% in September whilst unemployment for the three months to August has stabilised at 4.9% of the workforce.
We will be monitoring developments and looking at the economic impact throughout this process. In the meantime, if you have any questions, please feel free to email us at tax@cooperfaure.co.uk.
In the spring, we published a newsletter that outlined the policy objectives of the Government investing £1.3 billion into HM Revenue and Customs to transform the UK into one of the most digitally advanced tax administrations in the world and how it would impact you.
Over the summer, HMRC published the six consultation documents and invited responses by 7th November 2016. Since then, CooperFaure has been actively engaged with both HMRC and software providers and, as a result, thought it was timely for an update.
By 2020, most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and to update HMRC at least on a quarterly basis through their digital tax account.
The HMRC plan is to phase this in by starting with Income Tax from April 2018 then VAT from April 2019 and, finally, Corporation Tax from April 2020. This seems perverse and it would be far more logical to start with the largest incorporated businesses, who invariably would hold records digitally on their accounting software, and work down.
Setting aside the natural scepticism of the HMRC being able to deliver such an ambitious IT project to time, the course is set.
In practise, this means that almost everyone that currently completes a Self-Assessment Tax Return will be the first to be impacted.
There are some specific exemptions in the consultation:
However, in a significant move, the consultation is proposing a deferral to April 2019 for smaller self-employed businesses and landlords and is asking for feedback on the level of this deferral threshold. Our view, that chimes with the vast majority of the accountancy profession, is that the deferral threshold should align with the VAT threshold.
It seems frankly ludicrous to ask a sector that currently is not required to have any online engagement with HMRC to be the trailblazers in implementing a completely new reporting system. However, despite the logic, whether setting the deferral level at £83,000 is anyway in line with HMRC thinking remains to be seen.
Self-employed businesses and landlords will need the tools to enable them to file digitally in a prescribed manner. Unlike with the current Self-Assessment Tax Return or RTI-compliant payroll, HMRC will not be providing free software for Making Tax Digital.
Instead, they are looking to the software providers to make available free software for the smallest of businesses as part of a basket products catering for the wider market. It seems, at best, the free software will only deliver the specific HMRC requirements, so some other form of bookkeeping software will be necessary to run in tandem.
As a result, for self-employed businesses and landlords, one logical conclusion could be to incorporate their businesses and automatically set a deferral at least to April 2020.
In the 2015 Autumn Statement, Making Tax Digital was lauded as a reform targeted to reduce the costs to business of tax administration by £400 million by the end of the 2019-20 tax year.
The reality is that asking a business to report at least four times a year rather than once and being required to do so on a proprietary software can only add to the administrative burden and cost. Indeed, for more complex businesses, there will also be an ‘End of Year’ filing to review the four quarterly returns and make any necessary accounting adjustments or claim any reliefs and allowances not able to be included in the quarterly returns.
This has been recognised in the consultation which asks the questions “What level of financial support might it be reasonable for the government to provide towards investing in new IT, software or training?”, “What costs might you expect your business to incur in moving to the new regime?” and “Do you expect that your business will incur additional on-going costs as a result of these changes?”.
We urge every stakeholder to make their voice heard and take part in the HMRC consultation here. These questions fall under the ‘A: Bringing business tax into the digital age’.
Despite the Brexit effect and all the concerns and misgivings, we believe this tax revolution will happen as it is ultimately part of a process to accelerate the collection of business and personal taxes.
At CooperFaure, we are have already implemented accountancy solutions to enable our clients to thrive in the digital age. We will also be participating in alpha testing with software providers and private beta testing with HMRC, that will enable us to keep you fully informed on every step of the journey.
We anticipate that the 2016 Autumn Statement on Wednesday 23rd November will include draft legislation. At CooperFaure we will be providing a live Twitter Feed on @cooperfaure together with digest and detailed newsletters on the day.
For the first time, on Thursday 24th November, we will be hosting a Free Webinar between 1pm and 2pm looking at the impact on business, the contractor and the property investor and answering your questions.
As well as expert advice and a free copy of the presentation, you can ask that nagging question in our Q&A session. As ever, places are limited so to register and avoid missing out, please click here.
In the meantime, if you like any further information, please let email us at tax@cooperfaure.co.uk.
For many nascent entrepreneurs, the greatest challenge is to secure adequate funding to take their venture from the kernel of an idea to a revenue-generating business.
This is particularly apropos for Tech Start Ups, where, in most instances, you are presenting an idea.
The good news is that there are investors out there that specialise in the critical early stage investment. However, it is a hugely competitive market, so it is vital that your pitch stands out from the crowd.
At the recent Richmond New Tech 2016, we had the chance to discuss with early stage investors and entrepreneurs the elements that increase the odds of a successful pitch.
For an investor in this space, they are invariably looking for new technology that is easily scalable. In the current market, innovation is the key.
Whilst not being a hard and fast rule, there seems to be a preference for a Business-to-Business proposition that has a recurring revenue element at the core.
There has been a Brexit effect which has made securing funding more difficult and, given the volatility in the currency markets, the Sterling investor is more comfortable with a proposal that shows income generated in Sterling.
At the end of the day, it is all about the pitch – your chance to make your idea stand out from the crowd. Gimmicks and gizmos do not cut it, the pitch must reflect the personality and belief system of the founders.
Practise makes perfect and it needs to be more than in front of a mirror or to friends and family. Reach out to experienced advisors who will critique and polish your presentation and with whom you can brainstorm why the investor might be inclined to say no and prepare answers accordingly.
The pitch must be backed by a tight business plan which shows that you have analysed the sector, have a clear vision for your idea, it’s competitive advantage and a strategy to get to market. All this supported by financial projections that are properly costed and realistic.
Like the pitch itself, the business plan needs a professional input either in crafting it or, at least, in reviewing it. As Dragon’s Den shows, a grasp of the numbers is essential to have a chance of success.
Finally, if you are in a situation where there are going to be multiple pitches in a day and you are given a choice, it can pay to pitch first. This allows you to set the agenda.
Assuming that the investor is in the United Kingdom, most likely they would want to utilise the Seed Enterprise Investment Scheme or Enterprise Investment Scheme, dependent on the level of investment, which gives them an immediate tax break.
As a result, your company needs to be SEIS/EIS ready. Our ‘Seed Enterprise Investment Scheme – The Essential Guide’ is available to download for free here.
If you would like an initial call or meeting to discuss your circumstances, please email us at tech.hub@cooperfaure.co.uk to arrange a time. It is absolutely free and there is no obligation.
For a business start-up seeking early stage investment capital, the Seed Enterprise Investment Scheme (SEIS), is an invaluable tool in attracting investors.
Under SEIS, the company issues shares in return for an investment against which the investor can normally claim tax relief of 50% of their funding. Usually, these shares have a limited lifespan which has to be a minimum of three years.
The company is restricted to borrowing £150,000 in total including any State Aid that it receives.
However, for the investor to be able to claim and keep the tax relief, the company must meet a set of conditions. These conditions split between those that:
Requirements At The Time Of The Issue Of The Shares
Requirements To Be Met Continuously From The Date Of Incorporation
Requirements To Be Met Continuously From The Date Of Issue Of Shares
How The Money Raised By The Relevant Share Issue Must Be Used
It is essential that within three of the share issue all the funds raised have been spent for the purposes of a qualifying business activity. If this condition is not met, investors will lose their tax relief.
Buying shares or stock in another company is not regarded as being spent for a qualifying business activity. However, the company can invest the funding into a subsidiary at least 90% owned by the company, providing that the monies are thereafter used for a qualifying business activity.
The payment of dividends to shareholders is not a qualifying business activity.
A qualifying business activity is either:
What Is A Qualifying Trade?
The principal rule is that a qualifying trade is one which is conducted on a commercial basis with the aim of making a profit.
However, the following trades are excluded and, therefore, not eligible for SEIS:
The Benefit Of Advanced Assurance
In order to give comfort to your potential investors that your business qualifies for SEIS, HMRC have introduced an Advanced Assurance facility.
Their Small Companies Enterprise Centre (SCEC) will decide if your company and share issue qualify under SEIS and monitor you to ensure that they the requirements continue to be met for the duration the share issue.
Under Advanced Assurance, you can submit details of their plans to raise money, business structure and activities to SCEC in advance of the share issue. In turn, SCEC will provide counsel on whether or not the proposal is likely to qualify for relief.
Although this is not mandatory, we would strongly advise taking advantage of this especially if this is your first SEIS application.
Submitting The Final Application
Before your investors can claim their tax relief, your company must complete form SEIS1 and submit it to SCEC.
The form is essentially a declaration that, at the time of completion, your company has already met the requirements of the scheme to the date and that it expects to meet all other requirements.
You also need to provide the details of your investors. However, our Top Tip is that you only need to include the details of investors that will be claiming SEIS relief. For a variety of reasons, the investor may be ineligible or not benefit from SEIS, so it is important to establish this as part of the investment process.
You can only submit the SEIS1 once your company has been either:
Assuming SCEC accepts that the all the requirements have been met, it will issue your company with a certificate accordingly and will supply claim forms (SEIS3s) for you to send to your investors so they can claim tax relief.
The £150,000 maximum borrowing can be aggregated through multiple share issues for different funding elements. The process must be followed for each issue of shares where it is intended SEIS relief will be claimed.
Hence, the value in ascertaining from your investors whether they intend to claim SEIS relief.
How Do Your Investors Claim Their Tax Relief?
The tax relief can only be claimed once your company has issued the investors with their SEIS3 form. Most commonly, the investor claims their relief on the Self-Assessment tax return for the tax year in which the shares were issued.
However, the investor can claim the relief at any time up to five years after 31st January following the tax year in which the investment was made. For example, for an investment made in the 2016-17 tax year, the relief can be claimed up to 31st January 2023.
This flexibility can be extremely advantageous to a backer looking to optimise their tax efficiency.
The Next Step
On paper, this process can seem daunting but the reality is that, with good advice, it is fairly straightforward. At CooperFaure, we have vast experience of helping business start-ups to secure funding and, in particular, benefit from government schemes.
As your business matures, the Enterprise Investment Scheme or Venture Capital Trust offer a similar style of investor benefits, albeit at a lower 30% level of tax relief, for funding of up to £5,000,000 in a twelve-month period.
If you would like an initial call or meeting to discuss your circumstances, please email us at startup@cooperfaure.co.uk to arrange a time. It is absolutely free and there is no obligation.