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The Risks of the Proposed Changes to R&D Tax Relief for Small and Medium-Sized Enterprises

As ever, the Budget speech contains a quick reference to changes to the tax regime and it takes a detailed review the full Budget 2018 report to understand the true implications.  This newsletter, the first of three, looks at the proposals for changes R&D tax relief for small and medium-sized enterprises.

The Treasury opines that HMRC has prevented fraudulent claims totalling £300m under the SME R&D Tax Credit scheme.  This scheme enables a qualifying loss-making company to receive a tax credit payment.  However, there is no reference to the timeframe that the £300m covers.

To counter this, the proposal is that, from the 1st April 2020, the amount of payable R&D tax credit will be restricted to three times the company’s total PAYE and NICs liability for that year.  The government will hold a consultation on this proposal.

Let us be clear, there is without doubt an element of fraudulent claims under the SME R&D Tax Credit scheme.  We have heard horror stories.  The current ‘no win, no fee’ culture of many service offerings combined with a lack of transparency has enabled a small number of disreputable providers to thrive.

However, for the start-up, contracting out innovation work when finances allow rather than employing staff often makes business sense.  The ability to recover 33.5% of qualifying spend as a payment from HMRC that often only amounts to a few thousand pounds but can provide vital oxygen to move the business to the next stage.

At a time when the aim is for Britain to lead the world in technological innovation, we strongly oppose this proposal and will be outlining our views in the consultation.

SME is such a broad term covering business with between 0 and 249 employees.  In 2017, there were 5.695 million businesses in the UK of which over 99% were SMEs and 5.5 million businesses were classed as micro-businesses with between 0 and 9 employees and only 24% were employers.

The real scandal is that, according to official statistics, in the 2016-17 tax year, there were just 33,880 claims made under the SME R&D scheme.  Are we really saying that less than 1% of SME businesses are undertaking any R&D?

From our client portfolio, roughly 25% have an element of qualifying R&D across a wide profile of business sectors.  Indeed, at CooperFaure we have made our own successful R&D tax relief claim.

Fraud is serious and we fully support a considered approach to effectively combat it.  However, the proposal of an arbitrary arithmetic formula to combat it smacks of laziness and the pervading law of unintended consequences will stifle innovation.

£300m is a significant amount.  However, in 2016-17, the tax credit element within the 33,880 claims totalled £1,820m and, on the most conservative estimates, this means that £10 billion of R&D tax relief entitlement has gone unclaimed.

At CooperFaure, we are on a mission to demystify, simplify and educate on the generous UK tax incentives to support business innovation.

If you have ever wondered whether there is an element of your business activity that would qualify for R&D tax relief, please contact us a tax@cooperfaure.co.uk arrange an initial consultation with one of our team of specialists.

2018 UK Budget – Bite-Size Summary

In the 2018 UK Budget, the Chancellor of the Exchequer, Philip Hammond, was able to make some eye-catching announcements including:

However, as ever, there some announcements which will adversely impact a wide cross-section of tax payers – changes to the off-payroll working in the private sector, Entrepreneurs’ Relief, R&D tax relief for small and medium-sized enterprises and to Letting Relief and the final period exemption in calculating the Capital Gains Tax private residence relief.

Our newsletter in the morning will explore these changes in more detail.

In the meantime, if you have any questions on the 2018 UK Budget, please contact us at tax@cooperfaure.co.uk.

2018 UK Budget – Monday 29th October – CooperFaure Will Bring You All The News

The UK Chancellor of the Exchequer, Philip Hammond, has announced that the 2018 Budget Statement will be presented on Monday 29th October.

As Brexit looms closer and with Theresa May announcing that “austerity is over” and pledging a major uplift to the NHS budget, the Treasury is under real pressure. Measures that are said to be under consideration include an effective increase in Income Tax by freezing the Personal Allowance and Higher Rate threshold, reducing the VAT compulsory registration threshold from £85,000, cutting the annual tax-free pension allowance from £40,000 and targeting contractors working in the private sector through Personal Service companies.

At CooperFaure, we will once again be providing a live Twitter feed followed by two newsletters, one that afternoon highlighting the key announcements and another on Tuesday morning looking behind the statement into the detail of the Budget Report. Invariably, there will be a devil buried in the detail!

If you have any questions or concerns that arise from the 2018 Budget, please contact us at tax@cooperfaure.co.uk.

Disguised Remuneration – The Loan Charge is Drawing Close

The 2016 Budget included a clause on future measures to tackle the current and historic use ‘disguised remuneration’ schemes. These are generally schemes that involve individuals being paid in loans through structures such as an offshore Employee Benefit Trust (EBT) or Contractor Loans. In both instances, whilst the loans are theoretically repayable, the Loan Agreement is drawn up in a such a way to ensure that, in reality, these loans are never repaid.

The clause ended “…this will include a new charge on loans paid through disguised remuneration schemes which have not been taxed and are still outstanding on 5th April 2019.”

Two years on and this date is drawing close, especially considering that it is the last date of the current 2018-19 tax year.

The HMRC has assured everyone that submitted their information to request a settlement by 30th September that “you will receive a response which will allow you sufficient time to settle ahead of the April 2019 Loan Charge”.

The question is what constitutes “sufficient time”? In our view, this has to a minimum of three months.  In practice, this means that HMRC need to issue settlement offers before the Christmas holiday season.

In a landscape dominated by Brexit, we have a real concern as to whether this is going to be achievable by HMRC and to what the implications will be if a loan is outstanding on 5th April 2019 despite the best efforts of the tax payer. From this perspective, we are looking to the Budget at the end of the month to see if there is any movement on this.

On the settlement terms, faced with the real prospect of families being driven into bankruptcy, there has been a softening in tone from HMRC.

For someone with current earnings of up to £50,000 and who is no longer participating in a tax avoidance scheme, you can request time to pay of up to five years without needing to provide detailed information on your circumstances.

If your income is higher or you need a longer payment period, HMRC say “we will work with you to agree a suitable arrangement”.

At CooperFaure, we are representing a number of clients working under a raft of these schemes. If you are concerned about your situation, please contact us at tax@cooperfaure.co.uk for a free and informal consultation.

Paying Your Self-Assessment Tax Through Your PAYE Tax Code

As the deadline for the paper filing of the 2017-18 approaches at the end of October, one frequent question that we asked is “I am paid a PAYE salary and owe less than £3,000 in tax on my self-assessment, so why can’t I pay my tax through my tax code?”

On the face of it and in the narrative of the both the online and paper tax returns, there are three simple conditions that all have to be met to allow the self-assessment bill to be paid through your PAYE tax code:

However, there are three further conditions that need to be met:

It is this last condition that often prevents your self-assessment tax being collected via your PAYE code.

Take, for example, someone on a £20,000 salary in the current tax year with the standard Personal Allowance is £11,850, the total PAYE Income Tax due will be £1,628.20. In this scenario, the self-assessment tax can only be collected through the PAYE tax code if it is less than £1,628.20.

The figure if the salary is £24,000 would be £2,428.20 and £26,860 is the PAYE threshold where the Income Tax exceeds £3,000 and, therefore, you can be sure that a self-assessment bill of up to £3,000 can be collected through the PAYE tax code.

As the personal tax season comes to the fore, at Cooper Faure, we have a team of experts who can provide guidance and support. For further information, please contact us at tax@cooperfaure.co.uk.