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The Marriage Allowance lets you transfer up to 10% of your Personal Allowance to your husband, wife or civil partner. For the 2015-16 tax year, the maximum amount is £1,060.00 that would reduce their tax by £212.00.
The Personal Allowance is the amount of income that you can earn in a tax year on which there is no Income Tax to pay. For most people, the Personal Allowance is £10,600.00 this year.
You are eligible to claim the Marriage Allowance if all four of the following conditions apply:
If these conditions are met, then you can now apply online at https://www.gov.uk/marriage-allowance.
For the application, you will need your and your partner’s National Insurance numbers.
In addition, you will need a proof of identity that can be:
The £1,060 limit will increase automatically in line with any increase in the Personal Allowance in future tax years.
If you would like to discuss the Marriage Allowance in particular or your tax affairs in general, please email us at welcome@cooperfaure.co.uk for an initial consultation that is free and without obligation
One small paragraph on page ninety-nine of the Summer Budget document could have major consequences for a lot of people.
“Tackling the hidden economy – The government will extend HMRC’s powers to acquire data from online intermediaries and electronic payment providers to find those operating in the hidden economy. We will legislate at Finance Bill 2016 to achieve this, following a consultation on the detail.”
That consultation has started and runs to 14th October. Whilst the consultation document does not name any companies specifically, it refers to compelling business intermediaries such as advertising boards or platforms, App stores and booking and reservation services to provide data.
Clearly, HMRC have firms like eBay, Amazon, Apple and Airbnb in their sights in what could potentially be one of the largest tax crackdowns on record.
On the back of the eventual legislation, HMRC is promising to launch a new digital disclosure channel to enable online businesses to submit details of untaxed revenue.
The proposals are not aimed at individuals selling personal possessions online but at businesses that fail to pay tax. However, in this context, a business could be an individual trading on eBay or renting a room out through Airbnb.
There was some potentially good news on the latter with the Rent-a-Room relief set to increase from £4,250 to £7,500 from April 2016. This relief is the amount of tax-free income available to individuals who rent a room in their main residence.
It is important to bear in mind that if additional amounts are charged for meals, cleaning or laundry these must be added to the rent payment to work out the overall income. In addition, no expenses can be deducted.
However, there may be a cloud on the horizon here if we look at the situation in Ireland where the Office of the Revenue Commissioners already have the right to compel Airbnb to provide the information that HMRC are currently seeking.
The Revenue Commissioners are now arguing that Rent-a-Room relief should not apply to such rentals on this basis that the visitors are using the rooms “as guest accommodation rather than for residential purposes”. As such, their assertions is that the host is involved in a trade akin to that of the owner of a Bed and Breakfast and, therefore, the income does not qualify for the relief.
This is a contentious view disputed by many leading tax specialists and, therefore, it will need to be tested in the courts before being levied. Moreover, there is no indication that HMRC intend to follow a similar course in the UK.
However, in the age of austerity, if the Office of the Revenue Commissioners in Ireland are successful in this, it would come as no surprise if HMRC decided to follow suit.
If you are concerned that you may have untaxed revenue or over your tax affairs in general, please contact us at welcome@cooperfaure.co.uk for an initial free and confidential consultation.
If you would like to participate in the consultation, HMRC will accept comments by email at consultation.extensionofdata-gatheringpowers@hmrc.gsi.gov.uk. The full consultation document is available at https://cooperfaure.co.uk/wp-content/uploads/2015/08/Tackling_the_hidden_economy-Extension_of_data-gathering_powers.pdf
The Summer Budget included a significant change that will impact the Buy-to-Let property market.
As it stands, individual landlords receive tax relief on their mortgage interest payments at their marginal tax rate. For wealthier landlords, this means a tax relief of 40% or 45%.
The government has deemed this to be an unfair advantage over the ordinary homeowner. As a result, from April 2017 a four year programme will reduce this tax relief until it is ultimately fixed at the basic rate of tax.
In essence, once this change is fully implemented, the amount of mortgage interest tax relief available to a landlord in the Higher Income tax band will be halved.
At the same time, the rate of Corporation Tax is set to fall to 19% in 2017, and then to 18% in 2020.
The impact of these changes appear to make it much more attractive to purchase a property portfolio, even of one property, through a corporate structure.
Not only will the level of tax be less than that owning a Buy-to-Let property personally, but also there is a far wider pool of allowable business expenses that reduces the amount that is subject to tax.
However, landlords, especially in London and the South East of England, need to be aware of the Annual Tax on Enveloped Dwellings (ATED). Enveloped in this context means owned by a company, a partnership with a corporate member or another collective investment vehicle.
The tax came into force in 2012 and was originally aimed at companies that owned a high-end UK residential property or properties valued at over £2m.
However, from 1st April 2015 this property value threshold reduced to £1m and from 1st April 2016 a further band will come into effect for properties valued between £500,000 and £1 million. These properties will be subject to an initial Annual Charge of £3,500 that set to rise by the rate of inflation.
Moreover, there is no guarantee that ATED will not be extended to lower value property in the future.
Whilst there are reliefs available that could reduce or eliminate the ATED completely, these can only be claimed as part of the submission of an ATED return. This is both compulsory and separate from all the other HMRC filings. You would even need to submit a different authority form to appoint a tax advisor or accountant as Agent from the 64-8 used for PAYE, VAT and Corporation Tax.
Another important consideration is that if the property within ATED it is likely that the profit on disposal will be subject to Capital Gains Tax rather than Corporation Tax.
If a property consists of a number of self-contained flats each flat will usually be valued as separate dwellings. On the other hand, if there is internal access between the two or more flats either within the same building or in adjoining buildings these would be treated as one dwelling for ATED purposes.
All properties within ATED must be revalued on 1st April 2017 to set the value to cover the five years of ATED returns starting on 1st April 2018. This valuation is a self-assessment by the company on an open-market, voluntary sale basis and is reported on the return.
Needless to say, if HMRC challenges a valuation and it is found to be incorrect, there are severe penalties.
At CooperFaure, we are currently working with a number of clients with both individual and corporate property portfolios and would be pleased to review your circumstances. Please email us at welcome@cooperfaure.co.uk for an initial, free consultation.
Friendly Accountancy firm based in Teddington, Middlesex is looking for an Accounts Administration Assistant to join their small but busy and dynamic team.
The candidate should ideally have at least 6 months practical experience working within an office environment. Experience in an accountancy office is not essential, as full training will be provided.
The applicant must be numerate, meticulous, have a good phone manner and be extremely self-motivated.
This role is suited to someone looking for their first placement in the sector with opportunity to develop.
Job Type – Permanent, Full-Time
Salary – £12,000 – £15,000
Duties this role will include: –
Skills and Expertise Required
To be eligible for this role, candidates must meet the following criteria: –
If you are interested in the above role then please contact us at welcome@cooperfaure.co.uk for further details.
Following the Summer Budget, the forums have been abuzz with the negative impact to contractors working through a Personal Service Company from the changes to Dividend taxation and the Employment Allowance, the review of the rules for tax relief on travel and subsistence expenses and IR35 reform.
This newsletter aims to get behind the headlines and look likely actual effect and emphasize the importance of business management.
Whilst the new tax rates on Dividends are a net increase in taxation, it is worth considering how the current Dividend Tax Credit works.
If a contractor is paid a Dividend of £18,000, from a total income perspective, this is deemed to be a net payment after the 10% tax deduction. In other words, a Dividend payment of £18,000 equates to £20,000 of taxable income. In the new regime, the contractor would receive the full £20,000.
Taking the scenario where the contractor is paid a salary of £15,000, is paid Dividends to the higher rate threshold and has no other income, we have summarised below the overall impact of the changes for the 2016-17 tax year between the current and new systems:
| 2016-17 – Current Tax Structure | 2016-17 – New Tax Structure | ||
| Gross Salary | £15,000.00 | £15,000.00 | |
| Personal Allowance | £11,000.00 | £11,000.00 | |
| Higher Rate Threshold | £32,000.00 | £32,000.00 | |
| Taxable Income | £4,000.00 | £4,000.00 | |
| Income Tax at 20% | £800.00 | £800.00 | |
| Employee National Insurance at 12% | £832.80 | £832.80 | |
| Net Salary | £13,367.20 | £13,367.20 | |
| Employer National Insurance at 13.8% | £957.72 | £957.72 | |
| Dividends Available (No Tax) | £25,200.00 | £5,000.00 | |
| Dividends at 7.5% Tax | £23,000.00 | ||
| Dividend Tax | £0.00 | £1,725.00 | |
| Total Income | £38,567.20 | £41,367.20 | |
| Additional Income | £2,800.00 | ||
| Additional Tax | £1,725.00 | ||
| Net Movement | £1,075.00 |
In this scenario, whilst there will be a new tax liability of £1,725.00, the abolition of the Dividend Tax Credit system would increase the overall payments to the contractor by £2,800.00.
The contractor that can live on an average monthly take home pay of £3,450.00 would, in fact, be better off.
It is also worth bearing in mind the overall tax and National Insurance burden remains considerably less than for an employee on a £43,000 salary.
However, the new system will disadvantage those who take Dividends beyond the Higher Rate threshold. For every extra £1,000 of Dividends, there would be an additional £75 of tax to pay than there would have been under the old system.
Essentially, this make the approach of a salary and high Dividend remuneration strategy extremely unattractive and should encourage contractors to run their Personal Service Company as a business. The more costs that can be directly paid by the company, the less the necessity to draw a high level of Dividends.
The Budget document states “To ensure that the NICs Employment Allowance is focused on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the Employment Allowance.”
The actual framework of the legislation will determine whether simple steps such as appointing a fellow Director or employing a family member will enable the company to continue the entitlement to the Employment Allowance.
For a contractor with an annual salary of £15,000, the Employment Allowance will save their business £957.72 in the 2015-16 tax year.
The review of the rules for tax relief on travel and subsistence dates back to the 2014 Budget. The envisaged change is targeted at the use of the reimbursement of home-to-work travel expenses by Employment Intermediaries. However, although this is due to come into force from April 2016, at this stage the government have not published the detail of the changes.
Finally, the Summer Budget promises IR35 reform and that a “discussion document will be published….”.
Going back the 2010 Emergency Budget at the start of the last parliament, it stated “The Government remains committed to a review of IR35 and small business tax and will release further details shortly.”
The reality is that the world of contracting is so diverse that finding a workable mechanism to identify disguised employment is nigh on impossible. IR35 legislation has been in place since 2000 yet the impact has been minimal to this lack of clarity and, to date, the promise of reform has not yielded any delivery.
However, we strongly encourage our contractor clients to run their Personal Service Companies as businesses and not merely as a mechanism to convert day rate revenue into remuneration.
We anticipate the Summer Budget will generate a large number of questions and, as a result, we are offering a free Q & A forum.
If you email your question to us at welcome@cooperfaure.co.uk by Wednesday 15th July, we will include it and our response in a Q & A newsletter we will be publishing on Friday 17th July.
Further, if you have deeper concerns over your Personal Service Company, we have a limited number of free Company Healthchecks available which are offered on a first come, first served basis and without obligation. Please email us at welcome@cooperfaure.co.uk for more information.
The Chancellor of the Exchequer delivered his Summer Budget today and the key announcements for businesses are:
Our detailed review of the Summer Budget will be published tomorrow. In the meantime, if you would like to discuss how the Summer Budget will affect you, please email us at welcome@cooperfaure.co.uk.
When you want to research into the financial history of a UK company, the days of paying fees for this information may soon be gone for good.
Companies House are trialling a system that allows free access to the complete filing history of every UK incorporated company and partnership.
From BP to Vodafone to Cooper Faure, the details of the officers of the company, the annual accounts, annual returns and share transfers are available to print or download.
The link for this service is https://beta.companieshouse.gov.uk/
As the HMRC issue the first tranche of Accelerated Payment Notices (APNs) to individuals who have operated under offshore Contractor Loan schemes, we are taking stock of the current position.
Firstly, if you receive an APN, there is no right of appeal or to postpone the payment which is due within ninety days unless there is an error in fact within the notice.
Given that to date there has been no ruling that any scheme to which the APN relates is not tax-compliant, many eminent legal minds argue that this runs contrary to natural justice.
In this scenario, the only legal remedy for a receipt of an APN is to seek a Judicial Review which considers the decisions of public bodies on the grounds of illegality, irrationality or procedural impropriety.
However, the consequences need to be thoroughly understood before embarking on this route as it will be both costly and time-consuming process. In addition, HMRC may well seek costs if they ultimately win.
Most importantly, the timeframe is strict. A claim has to be filed promptly which means no later than three months after the grounds to make the claim first arose. For the recipient of an APN, the date that the notice is issued would be the start of this period. So the clock is running and the response of the scheme promoters will be critical.
The process is clearly laid out and does require substantial activity in the initial phases:
In February, the High Court granted around one hundred of the members of the Ingenious Media film partnership a Judicial Review of the APNs issued on their scheme stating that this was “clearly a case where permission should be granted”.
In this case, the central bases for arguing that issue of the APNs were unlawful are:
The participants also contend that the APNs would have the impact of further slowing down the process of ruling whether or not the substantive scheme is, indeed, a vehicle for tax avoidance.
It is worth bearing in mind that the granting of a Judicial Review is, in itself, relatively rare. Independent research by Thomson Reuters indicates that less than 10% of applications are successful.
However, the process is slow and the review decision probably will not be until late summer at the earliest.
The outcome has fundamental consequences for both parties. If the decision goes against the recipients of the APNs, this will leave them with potential life-changing tax payments to make in a situation where there is no certainty that there is actually any tax due. If the decision goes against HMRC, by inference, the power of parliament has been successfully challenged both on a constitutional and European level that has far-reaching implications outside tax avoidance.
Clearly, with so much to lose, neither party will be mindful to accept the ruling. So there is every expectation that the case will ultimately be appealed to the Supreme Court for a final decision.
In the meantime, HMRC will be continuing with the process of issuing APNs.
We are currently working with a number of clients who have operated under Contractor Loan Schemes and would be pleased to review your circumstances. Please email us at welcome@cooperfaure.co.uk for further details.
As more and more individuals in the UK opt to work for themselves under the protection of a Limited Company, a frequent question is can the company provide a pension scheme?
The short answer is yes where the shareholder/Director is also an employee of the business.
Company contributions into the pension scheme are an allowable business expense so long as they satisfy the HMRC test that they are ‘wholly and exclusively’ for the benefit of the business. This rule is applied to all business expenses.
Unlike employee contributions to a pension scheme that are capped at the level of salary, there are no precise rules to limit to the employer’s contribution. Rather it has to be deemed proportionate.
In instances where the Director is the spearhead of the business and whose activity generates the company revenue, a compelling case can be made to justify a relatively large pension contribution in relation to their salary.
The annual allowance for contributions into an individual’s overall pension pot is currently £40,000.00 after which the individual would pay tax on additional savings. As a result, this serves as a de facto limit.
The other figure to be mindful of is the lifetime allowance which is currently £1.25 million. Again, the individual is subject to tax on amounts above this limit.
If you are enrolled in more than one pension scheme, it is important to keep track of the overall total across the schemes.
Assuming the company pays £40,000 into a pension scheme in a financial year, this would reduce the Corporation Tax liability by £8,000.
In terms of the pension scheme, there are a myriad of proprietary products which may be suitable.
As an accountancy firm, CooperFaure is not allowed to provide pension advice. Moreover, our ethos means that we do not endorse any product in return for a commission. However, we would be pleased to provide the contact details of pension advisors based on our clients’ feedback.
For the more entrepreneurial, an alternative is a Small Self-Administered Scheme (SSAS) that allows business owners to keep more control over the investment and administration of their pension funds.
A SSAS is still an occupational pension scheme but is established under trust by the sponsoring employer for the benefit of the scheme members who ought to be trustees. As such, it is outside the scope of the Financial Conduct Authority but is regulated by the Pensions Regulator.
The company would pay contributions into a separate bank account specifically for the SSAS and these funds are invested and grow with interest, dividends, rents and further contributions.
However, the SSAS can provide financial flexibility for a business. For example, the trustees are allowed to make a commercial loan back to the sponsoring employer or to purchase property to lease back to the sponsoring employer at the market rent.
Beyond the Corporation Tax relief, there are some attractive tax benefits:
The level of company pension contributions and the manner in which they are invested should form part of the overall financial and tax strategy of the business owner.
If you would like any further information or to discuss your particular circumstances, please email welcome@cooperfaure.co.uk for an initial free consultation.
In the past, donations to charity were not seen as a valid business expense by a Limited Company and, as a result, were not allowable for tax relief.
In recent times, to encourage an altruistic spirit, the rules have been liberalised. As a result, a Limited Company now pays less Corporation Tax when it gives the following to charity:
In most instances, when the company donates money to a charity the value of these donations can be deducted from the total business profits before tax.
However, the company cannot be deduct donations that are:
If the charity gives the company or anyone connected a gift in return – maybe tickets to an event or a bottle of wine – the following limits apply:
| For donations up to £100 | – | 25% of the donation |
| For donations between £101 and £1,000 | – | £25 |
| For donations over £1,000 | – | 5% of the donation (maximum £2,500) |
If the company donates your or the staff’s time to a charity, this is treated as a secondment.
The company would continue to pay the employee and run Pay As You Earn (PAYE) on their salary as normal. Their overall costs, including any expenses incurred on the secondment, would be deemed as business expenditure as though they were still working for the company.
The company can award sponsorship to a charity that is considered as a business expenses so long as the charity:
Equipment given to charity must have been used by the company to recover the full capital allowances on the cost of equipment. Typically, equipment falls into one of the following categories:
If the company gives trading stock to a charity, this is treated as a zero-value sale. The full purchase price or manufacturing cost of the stock is included as a business expense in the normal manner.
For VAT-registered companies, VAT needs to be accounted for on the donated items. However, you are entitled to apply zero VAT if the donation is specifically for the charity to:
The company is able to reclaim the VAT on the cost of the donated trading stock.
Should the company decide to give or sell land and property to charity it is vital to firstly ensure that the charity can accept the gift.
If so, the company would not pay tax on any capital gain and would be entitled to deduct the market value of the gift from the business profits before tax.
There is more work and documentation required for a gift of land or property. The market value at the time of the gift needs to be demonstrable and the charity needs to provide a statement that they have accepted the gift that includes:
A company cannot donate its own shares but, if it owns shares in another company, these can be donated by completing a stock transfer form to move the shares into the charity’s name.
Although the methodology varies for each of these types of donation within the Limited Company’s accounts, ultimately these all have the impact of reducing the Corporation Tax for the period.
If you have any questions or would like further guidance, please email us at welcome@cooperfaure.co.uk.
If you have not completed a tax return before, you need to register online with HMRC.
For everyone except sole traders and partnerships, to register with HMRC click here.
For a new sole trader, to register with HMRC click here.
For a new partner, to register with HMRC click here.
If you are the ‘nominated partner’, you need to register both yourself and the business partnership here.
HMRC target to post your Unique Taxpayer Reference that enables you submit a tax return within two weeks of registration.
Once you have your Unique Tax Reference you can either prepare and file a paper tax return before the deadline of 31st October 2015, enrol for the HMRC online service that grants a longer deadline of 31st January 2016 or appoint a tax advisor to act as your Agent.
To appoint CooperFaure, we would need is your Unique Tax Reference, National Insurance Number and Post Code to act on your behalf.
If you would like to arrange an initial free consultation to discuss your tax affairs or would like any further information, please email us at welcome@cooperfaure.co.uk
In the UK, we are in the fortunate position where most people earning a PAYE salary or wage or receiving a pension do not need to complete a tax return.
However each year, as working and lifestyle patterns change, the number of tax returns increases. More than 10,000,000 were filed for the 2013-14 tax year.
For the 2014-15 tax year, if any of the following apply to you, a tax return is required:
In some circumstances, you would need to submit a tax return to claim a tax rebate from HMRC. For instance on:
For all except sole traders and partnerships, if you have not submitted a tax return before, you need to register online with HMRC here.
HMRC target to post your Unique Taxpayer Reference that enables you submit a tax return within two weeks of registration.
For a new sole trader, to register with HMRC click here.
For a new partner, to register with HMRC click here.
If you are the ‘nominated partner’, you need to register both yourself and the business partnership here.
Once you have your Unique Tax Reference you can either prepare and file a paper tax return before the deadline of 31st October 2015, enrol for the HMRC online service that grants a longer deadline of 31st January 2016 or appoint a tax advisor to act as your Agent.
If you would like our assistance with your tax return, we would need is your Unique Tax Reference, National Insurance Number and Post Code to act on your behalf.
If you would like to arrange an initial free consultation to discuss your tax affairs or would like any further information, please email us at welcome@cooperfaure.co.uk
We are delighted to announce that Freddie Faure has been awarded a Fellowship by the ACCA in recognition of her continuous commitment to professional development in the five years since qualifying with the Association of Chartered Certified Accountants.
In addition, we are pleased to welcome Lindsay Kantorowicz to the team as an Accounts Administration Assistant.
Lindsay reports to Martina Kovacova who has accepted the role of managing the London office.
A Limited Company is a company that is registered at Companies House and governed by its own Articles of Association (these set out the rules company officers must follow when running their companies). In addition a Limited Company must observe and operate within the Companies Act 2006.
Upon registration, a Limited Company acquires its own corporate personality, hence it becomes a legal entity/person with its own legal rights and obligations. This separates the Limited Company from its officers and members. As a result, the company can acquire assets and properties of its own, become an employer, engage in contracts with others, be considered a criminal and has the ability to sue or be sued.
Limited Companies are considered Limited either by Shares or by Guarantee, which essentially means that the liability of the members is limited to their investment or guarantee to the company.
A company Limited by Guarantee does not have share capital, but rather the members have agreed to pay a fixed amount should the company go into liquidation. Companies often set up in this manner include Charitable Organisations and Financial Conduct Authorities.
On the other hand, a company limited by Shares is a company whose members’ liability is limited to the value initially invested in the shares or to a minimum of £100.00.
Most companies set up in the UK and those who are our clients are companies Limited by Shares and, as a result, we will focus on this particular set up throughout this guide.
A Limited Company must be made up of both Shareholders (members) and Directors (officers). These can be the same person or people. The company may also choose to have a Company Secretary (officer) though this is no longer a mandatory requirement.
Directors
The Directors have a great burden of responsibilities on their shoulders as they must at all times operate both within the law as well as in the best interests of the company and shareholders. Some of the main responsibilities of the Directors are as follows but the list is by no means exhaustive:-
It is normal that Directors hire other people to manage some of the day-to-day activities on behalf of themselves and the company, such as an accountant. However, the Directors are ultimately legally responsible for their company’s records, accounts and performance.
Shareholders
Shareholders can be one or more person, company or other institution that owns at least one share of the company’s shareholding. The shareholders are considered the company’s owners since they have the potential to profit (in the forms of Dividends) if the company performs well and, likewise, lose if the company performs poorly.
Limited Company Taxation Overview
Once a company has been incorporated at Companies House, HM Revenue and Customs (HMRC) is instantly notified and, in turn, sends the company by post a 10-digit Unique Tax Reference Number (aka UTR). This identifies the company to on their systems for communication and tax purposes.
The main forms of company tax that a Limited Company could come across and be responsible for are as follows:-
The tax rates and allowances for the 2015-16 tax year are available here.
Of the above taxes the only one that the company is mandated to register, submit returns and pay is the Corporation Tax. VAT is required when the company’s sales are over the VAT Registration threshold (currently £82,000 per year) although the company can register voluntarily at any time. Employment taxes come into effect when the company has staff with employment contracts in place.
Limited Company Responsibilities to Companies House
Aside from its tax submission and payment obligations to the HMRC, the company must also fulfil its responsibilities to Companies House in the form of an Annual Return and the annual preparation and submission of statutory accounts.
At CooperFaure, we have helped our clients achieve their ambitions by making this process as painless as possible. If you would like to discuss your circumstances or have any questions, please contact welcome@cooperfaure.co.uk to arrange an initial free consultation.
As part of the government’s ongoing commitment to make the United Kingdom a centre for advancement, there are attractive tax relief schemes available for Research and Development.
R&D Relief has the impact of reducing the Corporation Tax liability for your business. For companies that qualify for the Small or Medium-sized Enterprise Scheme, you may be entitled to receive at tax credit payment from HM Revenue and Customs.
There are two schemes, the Small or Medium-sized Enterprise (SME) Scheme and the Large Company Scheme.
For the purposes of determining which scheme is applicable, an SME is defined as a company or organisation with fewer than 500 employees and either of the following:
It is important to consider these limits in relation to the total organisation. For instance, a company that met these conditions would not qualify if it is owned in full or in part by a larger business that fails these tests.
The SME scheme is not available if you have received subsidy or grant that is recognised as ‘state aid’ by the European Commission. In this case, the Large Company Scheme would apply.
Finally, there is an upper limit of €7.5 million on the total amount of relief available on any one R&D project.
Do not be deterred by the enormity of these numbers. R&D Relief is designed to help the entrepreneur working on their own to achieve an advance in overall knowledge or capability in a field of science or technology as much as a corporation. There is no minimum amount that you need to have spent to qualify. According to official statistics, the average relief is £46,000.
The Small and Medium-sized Enterprise Scheme offers a higher rate of relief. Currently, this is set at 225%. In other words every £100.00 of expenditure on qualifying costs has the impact of reducing the taxable profit of the business by £225.00. If the overall impact results in there being a loss, this can either be converted to a tax credit or carried forward to the following year.
Under the Large Company Scheme, the tax relief on allowable R&D costs is 130%. However, unlike the SME scheme, if the business makes a loss in the period, it can only be carried backwards or forwards in the normal manner.
In determining that your R&D project qualifies for either of these schemes, you would need to be satisfied you could demonstrate that it involved a scientific or technological advance.
The key in this evaluation is the advance rather than the product or the process. It is not sufficient for the product is commercially innovative if there is no advance that was not readily available or deducible by a competent professional working in the field.
On the other hand, these schemes are not just for new products. Developing an existing product or process to resolve technological uncertainty or to make a substantive improvement could also qualify for R&D relief.
Moreover, the R&D project does not have to have been a success to qualify so long as it can be established that the goal was to achieve a scientific or technological advance.
If you are content your R&D project qualifies, then you can claim tax relief on revenue expenditure in the areas outlined below:
In addition, under certain circumstances, a proportion of subcontracted R&D expenditure would qualify for R&D Relief.
Although capital expenditure is outside the scope of these R&D Relief schemes, there are other incentives available.
There are specific R&D capital allowances and mechanisms for claiming tax relief on R&D revenue expenditure that has been capitalised in your accounts.
For more general capital spend, the Annual Investment Allowance limit for plant and machinery expenditure has been temporarily increased to £500,000 until 31st December 2015. Thereafter, it will return to £25,000 per annum. This allowance enables qualifying capital costs to be fully expensed in the year of acquisition rather than being depreciated over time.
At CooperFaure, we are working with clients to ascertain when their projects qualify for R&D Relief and, if so, to ensure that all the qualifying costs are being claimed. More importantly, we liaise directly with HMRC to secure the tax relief.
If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at welcome@cooperfaure.co.uk.