Got ideas buzzing about your business? Let's talk! Schedule a hassle-free, commitment-free consultation at your convenience. Whether it's a Zoom call, MS Teams meeting, or a good old-fashioned phone chat, we adapt to your style. In this initial conversation, share your business vision and queries. From there, we'll whip up a tailored proposal, open for your comments and revisions until it's just right. Give us a shout — let's see what we can achieve together!
It is a win-win situation for the Company and the Investor!
The Enterprise Investment Scheme (EIS) has been made available by the government to help small to medium sized companies grow by acquiring investments. It is one of four schemes available and it provides tax relief for investors who purchase shares. Therefore, it acts as an incentive for individuals to invest into small to medium sized companies and in turn assisting the government’s goal of growth. It is a win-win situation for both parties.
If you are a company looking for investment through EIS you can raise up to £5 million per year and £12 million maximum in the company’s lifetime. There are certain legal requirements that the company must meet and these are outlined in the Income Tax Act 2007. Additionally, under the new rules the company must show evidence of long term growth and outline the high risk of potential capital loss. Overall, it is vital that the company and investors complies with the scheme’s rules for 3 years in order for the investors to receive and keep the tax relief. It is important to note that it is not solely a commitment at the point of investment but must be adhered by for 3 years.
HMRC enables companies to apply for Advanced Assurance before shares are issued. This can aid the company to receive investment as it provides investors with assurance whether the company will be eligible for EIS. Please note that HMRC no longer provide advanced assurance on applications entailing speculative investors. Therefore, potential investors must be detailed in the application and the process cannot be commenced without the company having an idea of whom their investors will be.
We at CooperFaure can assist in compiling all of the following which is required for an Advanced Assurance Application:
If the company is not going to apply for Advanced Assurance the full list stated above is required to be submitted alongside the Compliance Statement (EIS1 form). Once it has been reviewed by HMRC’s Small Companies Enterprise Centre (SCEC) it will either be refused or approved. If the Compliance Statement is approved SCEC will send the company two forms EIS2 and EIS3. EIS2 states that the company is authorised to issue certificates that they are a qualifying company. EIS3 are blank forms that the company is required to fill in and send to the individual investors as a certificate. These certificates enable the investors to receive tax relief. Without proof of EIS3 the investor will not be able to claim tax relief.
A company must not submit the Compliance Statement until at least 4 months of the specific trade or research and development has been carried out for which the money is raised. Additionally, it has to be submitted before 2 years has passed from the end of the specific tax year that the shares were issued or two years after the end of the period of four months referred to above.
In order for the investor to make a claim they need to have an EIS3 certificate as stated above, ensure that they meet all of the conditions and that the claim is made within 5 years after the 31 January following the tax year in which the shares were issued.
The investor cannot have any connection with the company in order to qualify for tax relief. The following are examples of people who will not qualify due to this reason:
All of the conditions above apply for 5 years and this period is for 2 years before and 3 years after the latest of date the shares were issued or date of start of trade.
Additionally, as well as the examples provided above the 30% rules apply for an associate and therefore will not qualify as an investor. An associate can be anyone of the following:
For shares distributed at incorporation and before trade has commenced or more shares are issued the 30% rule does not apply.
Siblings are not seen as associates of the company and can therefore qualify as an investor as long as all the other conditions mentioned above are met.
If the investor receives any value for example in terms of a loan or shares are repurchased during the 5-year period the relief received from EIS must be withdrawn or reduced.
For further details how to take your business to the next level please read our previous newsletter.
We at CooperFaure believe that EIS is a great scheme for most companies to attract investors in order to grow their company. We have assisted numerous clients with the EIS process and have found that as long as all the information is correctly provided to SCEC and all conditions are met there is no reason for the company not to be eligible for EIS.
If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at tax@cooperfaure.co.uk.
Answer our 6 simple questions to help you establish if your company is eligible for R&D Tax Relief:
Please click here for the questions.
If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at tax@cooperfaure.co.uk.
The HMRC is part way through a major consultation on the reform of off-payroll working, aka IR35, in the private sector which ends on 10th August.
Their premise is that two people undertaking the same work, one employed and one working as a contractor working through their own Personal Service Company, end up “paying very different levels of tax” which HMRC deem to be unfair. As a result, HMRC are considering rolling out the reforms introduced in 2017 to off-payroll working in the public sector to the private sector.
Their main illustration in the consultation document available here compares the level of tax paid by Charlie, a contractor working through his own company, and Thomas, an employee. If anything, the illustration overstates the amount of tax that Charlie would pay. Any accountant or tax advisor worth their salt would ensure that less is paid.
The over-arching undercurrent of the consultation is that the actions of contractors using a Personal Service Company is borderline tax avoidance and, as such, against the public interest.
It is hardly breaking news, but a contractor earning the same as an employee will pay less tax!
On the other hand, the consultation ignores that the contractor usually has a minimal notice period and has waived employee entitlements and benefits such as holiday pay, sick pay, workplace pension auto-enrolment and the right to bring a claim for unfair dismissal.
Moreover, maybe understandably, the consultation is blinkered on tax. The HMRC estimates that “the cost of non-compliance in the private sector is high and growing – projected to increase from £700 million in 2017/18 to £1.2 billion in 2022/23.”
Personal Service Companies are not elaborate tax structures funnelling vast sums of money offshore. These are small businesses and, if we accept the HMRC estimates, whilst these monies are not going to the Exchequer, they are being spent in the UK economy.
However, the biggest flaw in the consultation is that the private sector is not the public sector. The public sector is predominantly made up of monolithic organisations with hefty headcounts. The private sector is a broad canvas from the FTSE 100 to a start-up working from home.
Here lies the real danger. As Brexit approaches and the government is channelling its energies through the Department for International Trade to make the UK a centre for innovation, this reform would be a death knell for start-up and early stage businesses.
Whilst the UK offers some fantastic incentives for innovation, these are largely after the fact. The R&D Tax Credit will provide a much-needed cashflow stimulus but, for a start-up today, only in fifteen months’ time.
At CooperFaure, we are working with an array of start-up and early-stage businesses across a wide range of sectors and they all engage contractors.
There is no doubt under the myopic vision of the HMRC consultation, these contractors would be deemed to be employees. However, there is a bigger picture.
For a start-up, cash management is one of the cornerstones for success and engaging a contractor is a less expensive and more flexible option. Not to mention, less administratively burdensome.
The rationale is not to avoid tax rather to provide a stepping stone to a more mature business. We can site numerous cases where a start-up has evolved through the use of contractors and is now employing a substantial workforce.
As with any consultation, it is vital to make your voice heard. Not just the voice of the contractor but also the voice of the entrepreneur and business owner.
The official channels to respond to the consultation are by email to offpayrollworking.intheprivatesectorconsultation@hmrc.gsi.gov.uk or by post to IPD Employment Status and Intermediaries Policy, Room 3/46, 100 Parliament Street, London, SW1A 2BQ.
However, you should also consider writing to your MP, the details for which can be found here, or to the Chancellor directly at HM Treasury, Horse Guards Road, London, SW1A 2HQ.
In the meantime, if you have any questions or concerns, please email us at tax@cooperfaure.co.uk.
Last week, the European Commission approved “the prolongation of the UK Enterprise Management Initiative (EMI) scheme ” under EU State Aid rules.
In their news update, the European Commission stated that the UK authorities notified their plans to extend the scheme in March 2018. It seems extraordinary that this notification was left so close to the lapsing of the original approval.
The Commission’s assessment found that EMI was “necessary to help UK SMEs attract and retain talented and skilled personnel.”
Broadly, a company with assets of £30 million or less, unless categorised in an excluded activity, can offer an EMI scheme to key staff and grant share options up to the value of £250,000 in a three-year period.
These share options would not be subject to Income Tax or National Insurance so long as the employee buys the shares for at least the market value they had at the point when the option was granted. If the employee subsequently sells the shares at a profit, Capital Gains would be payable.
The HMRC originally stated that “EMI share options granted in the period from 7th April 2018 until EU State Aid approval is received may not be eligible for the tax advantages presently afforded to option.”
However, the case summary published on the EU’s State Aid Register only indicates that the ruling would expire on 6th April 2023. In reality, the ruling is likely to expire when the UK ceases to be a Member State of the EU.
The expectation is that the European Union (Withdrawal) Bill will include legislation to cover enshrining EMI schemes into UK law unless the UK decides to join the European Economic Area, in which case State Aid Rules will still apply.
As no start date was specified, the inference is that there should be no interruption of state aid approval for EMI scheme.
However, as yet, HMRC has not published a bulletin to confirm the details going forward. We will issue a news alert when this happens.
In the meantime, if you would like further information on the Enterprise Management Incentive or other share schemes, please email us at tax@cooperfaure.co.uk.
At CooperFaure, we have received the following notification from HMRC on arrangements aimed at getting around the upcoming 2019 Loan Charge for individuals in Disguised Remuneration Schemes.
“HMRC is aware of a number of arrangements being promoted which claim to enable users to escape the 2019 loan charge. HMRC’s view is that these arrangements do not work and users are advised not to sign up to them. While promoters claim that these arrangements work, users should be clear that HMRC does not agree. Any arrangements to avoid the loan charge, which seek to deceive HMRC as to what is really happening, may be fraudulent.”
“A number of previous cases promoted as being compliant and legal have resulted in criminal convictions for the key people involved and extensive investigation of several hundred users. HMRC will investigate all of these arrangements and is likely to take similar action if it finds any that are seeking to deceive. At the very least, anyone who takes part in an offensive arrangement is likely to face penalty sums, chargeable along with any tax and interest that will be due.”
“Tax avoidance doesn’t pay. Most arrangements simply don’t work and people can end up paying more than they were trying to avoid. Users may have a long-term requirement to deal with the cost, commercial and tax fallout from these transactions with no support from the promoter of the original arrangement. If users are worried about their financial position, it is better to contact HMRC rather than risk more investigation and what is likely to be a larger bill.”
We at CooperFaure endorse the HMRC view on this matter and would counsel anyone who has received loans under a Disguised Remuneration Scheme to take advantage of the current settlement opportunity.
The deadline to register your interest is 31st May 2018. If you are not already in discussions with HMRC, this can be done by email with them either to cl.resolution@hmrc.gsi.gov.uk for contractor loan schemes or ca.admin@hmrc.gsi.gov.uk for all other disguised remuneration schemes.
The deadline to submit the required information to HMRC is 30th September 2018.
If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at tax@cooperfaure.co.uk.
At CooperFaure, we are working with an array of clients to ascertain whether their projects qualify for R&D Tax Relief and, if so, to ensure that all the qualifying costs are being claimed.
This week, we secured out largest single Tax Credit payment for a client of over £270,000 and we continue to have an enviable track record of agreeing with HMRC a 100% recovery of every claim submitted.
Our experience is that HMRC is actively working to support innovation by streamlining their processes to accelerate the payment of R&D Tax Credits.
However, the latest statistics from HMRC make interesting reading. For the 2015-16 tax year, the total value of R&D tax credits claimed was £2.9bn which represented a £470m increase from the previous year.
Total number of submitted claims in that year was 26,255, a 19% increase from the previous year.
Although these are substantial year-on-year increases, the HMRC estimates that less than 10% of companies with eligible R&D spend are making a claim. The stark reality is that companies are missing out on billions of pounds of tax relief that they are entitled to.
This is likely due to a large extent to a perception that the process is time-consuming, cumbersome and disruptive to the business. The truth is the complete opposite.
Another misconception is that R&D is only the domain of the manufacturing, science and technology sectors.
In 2015-16, there were successful claims from a vast array of other sectors including:
– agriculture, forestry and fishing;
– electricity, gas, steam and air conditioning;
– construction;
– transport and storage;
– accommodation and food;
– financial and insurance;
– education;
– health and social work;
– arts, entertainment and recreation;
– and admin and support services.
In other words, R&D Tax Relief is open to all businesses.
Our philosophy is to provide an affordable, personal service that starts with a conversation about your business and an honest appraisal as to whether your activities would qualify.
We have a dedicated team of R&D tax specialists and technologists who work with you and your team to understand the research and development that you have undertaken.
This enables us to ensure that we claim the full R&D Relief that you are entitled to and to present the technical report to HMRC in a meaningful, jargon-free way.
Finally, we manage the process from start to finish to ensure that there is minimal disturbance to your business.
If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at tax@cooperfaure.co.uk.
Freddie discusses our firm’s experience with technology and the effect that technological changes have had on the industry over the years.
Click here to read the interview.
If you have any queries, please do not hesitate to contact us on tax@cooperfaure.co.uk.
Disguised Remuneration
This newsletter will outline the new law that has been brought in by the government and your best steps of actions to avoid the loan charge.
What is a Disguised Remuneration Scheme?
A DR scheme is a scheme used by employers, employees and self-employed claimed to avoid paying the standard rates of Income Tax and National Insurance Contribution that they would normally pay on remuneration. Normally, the larger proportion of the remuneration is made up of a loan from a third party with no intention for the loaned amount to be repaid.
In July 2017 Rangers Football Club was found guilty of using a disguised remuneration tax avoidance scheme. The Supreme Court stated ‘that employment income paid from an employer to a third party is still taxable as employment income’ (HMRC, 2017).
The Loan Charge
In the Budget 2016, the new Loan Charge was announced and will apply for any loans made through a disguised remuneration tax avoidance scheme on or after 6th April 1999 and still outstanding on 5th April 2019. The charge arises on 5th April 2019 and this date is important as it is the last date of the 2018-19 tax year.
How the Loan Charge will work?
Contractors will be required to pay Income Tax on the total of all outstanding loans as if this was all income received in the 2018-19 tax year.
Self-employed and people who have used partnership schemes will also be liable to pay Class 4 National Insurance Contribution as well as the Income Tax mentioned above.
Any loan received in 2013-2014 and onwards will also include late payment interest.
Depending on the individual’s personal circumstance other tax liabilities may also apply, for example penalties and Inheritance Tax.
A Final Settlement Opportunity
HMRC are advising anyone who has been part of a DR scheme and still have outstanding loans to settle these prior to 5th April 2019 to avoid the Loan Charge. The tax due would almost certainly be lower as the loans will be treated income in the individual tax years that they were paid. In addition, the tax would be based on the net amount received.
There is more flexibility for payment terms to be extended through a contractual agreement before the loan charge comes into place. Additionally, payment arrangements are available if you struggle to pay the settlement amount. If you choose not to settle; the terms may no longer be available and you may face extra costs. Finally, settling will provide you with a peace of mind and more certainty.
If the loans made under a DR scheme were treated as a taxable benefit and this benefit was included in the personal P11D some Income Tax would have been paid. However, this is a relatively small amount compared to the Income tax due on the loan itself, but some tax has been paid nonetheless. Therefore, the overall amount due will be reduced by this amount.
There is a four-year window for this. As a result, only the years from 2013-14 onwards are open to amend the tax return in this way.
Additionally, if any Accelerated Payment Notices (advanced payments) relating to the DR schemes have been paid, the full amount is netted against the overall Income Tax due for the schemes and tax years against which they were issued.
How to Make Sure you Settle in time?
You have to register with HMRC before or on 31st May 2018 and then all of the requested information must be sent to HMRC by 30th September 2018.
To summaries, if you have any outstanding loans from a DR Scheme or you believe that you may have been part of a DR Scheme we strongly recommend for you to take action now.
If you are unsure if this applies to you or if you would like assistance with settling please do not hesitate to contact us. If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at tax@cooperfaure.co.uk.
This question, if you should be a Sole Trader or set up a Limited Company is a frequent query that we get asked. The answer is dependent upon your individual circumstances, but there are advantages and disadvantages of both that can help you make your decision.
This newsletter will take you through these to aid you with your decision making.
Advantages of being a Limited Company
A Limited Company offers the individual protection by limiting their liability as the Company is a separate legal identity from the owners. Any loan or credit agreements would be in the name of the Company offering a degree of safety to the individual. Therefore, the shareholders normally have no personal liability beyond the amount paid for their shares.
A Limited Company often appears more professional, more established, and both consumers and creditors know that it is legally registered and regulated. Therefore, there is a perception that a Limited Company is more trustworthy than a Sole Trader which may assist in winning new business.
Additionally, it is usually much easier and more likely to sell a Limited Company than a Sole trade business. For a Limited Company there is also an opportunity to raise funds by issuing shares.
Disadvantages of being a Limited Company
There are statutory requirements in and around operating a Limited Company that inevitably means paperwork. Therefore, administrative expenses will be higher than a Sole Trader to ensure compliance with formalities of Company law, such as preparation of board minutes and shareholder resolutions. As well as dealing with the extra returns and administration relating to running a Company. Due to this, professional accountancy services are normally required to assist with the preparation and filing of accounts and tax returns.
A Limited Company provides less privacy than a Sole Trader. Certain business information must be filed at Companies House and as a result they are available for inspection by members of the public, for example the Company’s Annual Accounts.
Advantages of being a Sole Trader
Sole Traders have fairly simple accounts and are required to submit an individual self-assessment tax return annually, possibly along with any other VAT and payroll returns depending on their circumstances.
Professional accountancy advice is normally required to prepare business accounts, tax returns and administration around VAT and payroll. However, there is less complexity compared to Limited companies, which can result in reduced administration costs.
Finally, there is no requirements to make information public and the business can generally be run in the matter in which the proprietor/owner wishes.
Disadvantages of being a Sole Trader
As a Sole Trader, the individual is the business and has unlimited liability, as such, would be personally responsible for any loan or credit agreements. This means the owner’s personal assets are at risk. When first trading the business may be small and consequently there may be lower exposure to cost and risk, but as the business grows the trade naturally becomes larger and riskier. Hence, it is usually much better from a risk perspective to trade through a Limited Company. This is one of the main issues to be considered when deciding on the structure of a new Company formation.
Additionally, the credit rating of the owner can affect the business’ credit rating. Therefore, it can be hard to raise funds when trading as a Sole Trader. Additionally, the business may appear less established compared to a Limited Company. This in turn, may impact on the owner’s ability to sell the business. Potential acquirers often perceive unincorporated businesses to have a lower value when compared to a Limited Company. Therefore, when selling the business, you may receive less than if it was a Limited Company.
Tax burden to be Considered
In most cases, the tax burden is relatively high for a Sole Trader compared to trading as a Limited Company.
As a Sole Trader you pay 20% – 45% income tax on the taxable profit, whereas for a Limited Company you will be subject to Corporation tax of 19% on the taxable profit (2018). This will be reduced further to 17% in 2020.
Additionally, as a director of a Limited Company you are entitled to an amount of tax-free allowance for dividend per tax year. This amount is currently £5000.00 for the tax year 2017-2018. However, this is going to be reduced to £2000.00 from 2018-2019 tax year.
You are also able to reclaim quite a substantial proportion of the expenses you are likely to incur for the Company and these expenses are allowable against Corporation Tax.
If you would like to discuss your circumstances or have any questions, please contact welcome@cooperfaure.co.uk to arrange an initial free consultation.
|
|
