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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.