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!
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.
Here is a useful an overview which should help you to better understand what the Enterprise Investment Scheme is and whether or not your eligible to apply for one.
Enterprise Investment Scheme provides the investors with a tax relief on their investment and has been made available by the government to aid growth. The investors receive a tax relief for the amount invested and in turn acts as an incentive, easing the process to attract investors. It is one of four schemes available under the venture capital schemes.
The following applies under EIS:
There are certain rules that you must follow to ensure your investors receive their tax relief. These rules must also be followed for at least 3 years after the investment has been received.
The money received from the investor is limited to be spent on qualifying business activities:
If more than 20% of you trade includes any of the following it does not qualify:
The money raised through EIS must be used within 2 years of the investment or if trade has not commenced it is on the start date of trading. The key is to use the money to grow your business, it cannot simply be used to purchase another business. Therefore, growth can be for example an increase in revenue, client base or the number of staff. This is part of the risk to capital condition that was introduced this summer. This condition also includes that the investment should be a risk to the investor’s capital and therefore within the agreement between the company and the investor there cannot be arrangements in place to reduce the risk. If the investment is in any way protected, for example by assured future income streams or capital repayment, the investment is unlikely to meet the risk condition. For more information regarding the risk to capital condition please click here – https://cooperfaure.co.uk/risk-to-capital-condition/).
Additionally, in order to qualify for the scheme your business must be permanently established in the UK without being on the stock market. Additionally, the company cannot be controlled or control another company.
To apply for EIS a compliance statement (EIS1) along with the following documents must be submitted, per share issue once a minimum of 4 months qualifying business activities has occurred:
If successful you will receive the authority to issue certificate (EIS2) and compliance certificate (EIS3) from HMRC. The EIS3 certificate must be passed on to the investor as without it they will not receive their tax relief.
In the past we would have strongly recommended to apply for Advanced Assurance as it provides you with a confirmation if you will be eligible for EIS before submitting EIS1. However, the HMRC has recently amended the requirements and you are no longer allowed to provide speculative plans within the Advanced Assurance application (EIS(AA)). Therefore, you must have particular investors in mind before submitting the EIS(AA). This has removed the ability to use the Advanced Assurances as a mechanism to attract investors by showing that you will be eligible. Nevertheless, if the investor is reluctant to commit we would still recommend to use EIS(AA) but you should bear in mind that this will prolong the process.
For further information please visit the HMRC’s website: https://www.gov.uk/guidance/venture-capital-schemes-apply-for-the-enterprise-investment-scheme
You can also listen to an interview of Jon Cooper on this topic, in our blog, here – https://cooperfaure.designmindshost.com/eis-tax-relief-on-investments/(opens in a new tab)
At CooperFaure, we have vast experience of helping businesses to secure investments and, in particular, benefit from government schemes. If you have any questions regarding Venture Capital Schemes, please email us at welcome@cooperfaure.co.uk.
The deadline to declare under the Requirement to Correct (RTC) legislation is fast approaching. RTC is the statutory obligation for UK taxpayers with overseas assets to correct any issues with their historic UK tax position. Those who fail to comply by 30th September 2018 face potentially severe financial penalties.
RTC applies to any taxpayer with undeclared UK Income Tax, Capital Gains Tax or Inheritance Tax on overseas assets.
Many taxpayers may not be aware that they have an obligation under this legislation. Renting out a property abroad, transferring an asset between countries or renting out a UK property whilst living overseas are examples that could result in a tax liability in the UK.
The key driver to this legislation is that from 1st October 2018, the UK is one of over one hundred participating countries that will be sharing data under the Common Reporting Standard to augment tax transparency.
The Common Reporting Standard will significantly boost the ability of HMRC to detect offshore non-compliance and, aligned with this, the HMRC will apply the Failure To Correct measures which allows them to apply penalties including:
As a result, we urge anyone with offshore assets to review their affairs to ensure they have been and will continue to be wholly tax compliant.
Offshore assets that typically could generate a tax liability include:
If you discover that you have any undeclared tax due on offshore assets or on UK property income whilst living abroad, it is absolutely essential that you notify HMRC by 30th September of your intention to make a declaration. Once this notification is made, you have ninety days to make the full disclosure and pay any tax owed.
If you are unsure whether a taxable event has occurred, we strongly recommend that you contact your tax advisor for guidance.
At CooperFaure, we are working with clients on these matters and, if you would like to arrange an initial consultation discuss your circumstances, please email us at tax@cooperfaure.co.uk.
Within this newsletter we will share the latest updates on Making Tax Digital (MTD) including who it will affect, how to ensure you are compliant and who are the MTD-compatible software suppliers.
To read the latest regarding MTD as of October 2021, please read out blog post here.
MTD was originally postponed, however the mandatory start date for MTD for VAT has been set, 1st April 2019. This requires any UK business who is registered for VAT with a turnover above the VAT threshold of £85,000 to submit their returns digitally from their first VAT Return starting on or after 1st April 2019. This applies for any business registered on the standard or flat rate scheme.
If a company’s turnover falls below the threshold after 1st April 2019 and they stay VAT registered they will still be required to submit VAT returns digitally. This applies to all businesses unless they deregister or fall into liquidation.
All records must be kept digitally and the returns must be submitted using any of the software suppliers working alongside the HMRC in support of MTD for VAT. To find out who these suppliers are please click here.
From experience, we strongly recommend for any company who is VAT registered to commence digital reporting prior to 1st April 2019 due to the increase in transparency and efficiency it has brought to our own business and clients.
Xero is one of our main accounting software’s which we use for our clients at CooperFaure and we are delighted that Xero is one of the software suppliers working alongside the HMRC in support of MTD. Therefore, Xero will automatically upgrade Xero’s VAT functionality to ensure that we will be using MTD-compatible software come 1st April 2019 with no upgrade fees attached. Due to this our clients are MTD ready and this is the same for anyone else currently using Xero.
At present numerous companies are still keeping their records and information on non-digital platforms, for example within Excel spreadsheets and then manually submitting the VAT Returns on the HMRC online portal or by post. In comparison, software that is compatible for MTD will integrate with HMRC directly to submit VAT returns. This ensures that the information equating the totals on the VAT returns will be much more easily accessible within digital software. It will increase transparency as a clearer audit trail will be available and copies of receipts and transactions can be kept in one place. Using software to connect directly will also minimise human error as well as increase efficiency within the business and between businesses and their agents.
From April 2020 all data for the VAT returns must be transferred digitally between each software within the business. This means that any data within a spreadsheet must be connected to a compatible MTD bridging software to pull the information digitally to HMRC. HMRC have announced that they will not be providing their own bridging software for businesses to use. However, they are providing Application Programming Interfaces (APIs) to enable commercial software developers to set up the integration between their software and HMRC.
There is no requirement to keep any additional business records because of MTD, but the records that are kept must be done so digitally in order to be compliant. Additionally, when MTD come into action the VAT return periods and the payment deadlines will not change.
Income Tax and Corporation Tax for MTD has been placed on hold and will not be compulsory until at least April 2020, but the option is available to voluntarily take part in the Income Tax pilot. HMRC has made a software available for agents or clients themselves to send Income Tax updates digitally. This has been put in place as a substitution to filing a Self-Assessment tax return. You can sign up to use this service if at least one of the following applies:
To sign up for this service, please click here.
Please click here to see which software providers connect can send Income Tax updates.
We at CooperFaure fully support MTD and can see the long-term positive effects it will have upon individual businesses and for the economy as a whole. We strongly advice everyone to take this opportunity to streamline their businesses and make the most of the new innovative technology that is now available. We believe this is a small step into the future of accountancy and we are excited to be a part of it.
If you have any queries or would like any assistance to ensure you are ready for MTD, please do not hesitate to contact us on tax@cooperfaure.co.uk.
Dispatching goods within the European Union (“EU”) is relatively straightforward as the EU operates under a single market which guarantees four key freedoms across the twenty-eight members states. These are the free movement of goods, capital, services and persons.
Whilst the Brexit negotiations are far from concluded, it seems that the UK government is looking for an arrangement that will allow the free movement of goods to continue. In any event, the current rules are set to remain until the end of the transition period.
In practical terms, this means most shipments can be dispatched to other member states of the EU without special customs documentation. There are exceptions, such as sales to international organisations which would be treated as exports, and exclusions such as goods subject to export licensing controls, such as military hardware, and goods classed as excise products, such alcohol, tobacco and hydrocarbon oils.
Goods in movement within the EU are termed as being dispatched upon leaving the state of origin of the goods, and as arrivals when entering the member state acquiring them rather than exports and imports.
Goods dispatched within the EU between VAT-registered businesses are not subject to VAT. This also applies to goods imported into the EU that have been released for free circulation following payment of import duties.
However, goods dispatched to a customer in another EU country who is not registered for VAT in that country and where the seller is responsible for delivery, are treated as ‘distance sales’. This is the case for mail order or internet sales to private consumers in another EU country.
For distance sales, VAT is charged UK rates in the normal way. However, each member state has a ‘distance selling threshold’ and if the value of sales to that country exceeds this limit, the seller must register for VAT in that country, and charge their rate of VAT or the equivalent tax on sales to that country. The current thresholds can be found here.
Customs declarations are not generally required for goods shipped within the EU but traders must raise VAT invoices and retain evidence of shipment.
Every business trading within the EU must declare these sales on its VAT return. If the sales of goods exceed the applicable exemption threshold during a calendar year, the business must also submit Intrastat returns each month.
The Intrastat thresholds are reviewed annually and are currently £1.5 million for Arrivals and £250,000 for Dispatches.
Whilst the levels remain below these thresholds, the trader is only required to declare the value of Dispatches and Arrivals on the normal VAT return.
Once these thresholds are exceeded, there is a requirement to submit additional monthly declarations to HMRC.
The EU has a trade agreement in place with the European Free Trade Association (EFTA) member states of Iceland, Liechtenstein, Norway and Switzerland which broadly applies the same terms for the free movement of goods.
The EU principle of ‘free circulation’ covers not only goods produced in the EU but also goods imported from outside the EU once all import formalities have been completed and import duty and any other customs charges paid.
Free circulation goods can then move within the EU and EFTA states without duty with the exception of goods that require a licence or carry an excise duty.
If you have any concerns of would like any further information, please contact us at tax@cooperfaure.co.uk
For companies looking to raise funds based by a venture capital scheme and for investors looking to benefit from the tax relief, HMRC have introduced a key new condition – the risk-to-capital.
This condition is being applied to the Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT).
The Risk-to-Capital Condition is made up of two components both of which must be met:
Under the first part of the condition, HMRC will be considering whether the company in its business plan has the clear ambition grow and develop its trade over the long term.
HMRC will look at some general indicators, such as increasing revenue, customer base and employees, together with those specific to the applicant’s business plan.
Essentially, HMRC are looking for evidence that investment is both planned to be and, in reality, is employed to support the company to grow and develop.
Under the second part of the condition, HMRC will be considering whether, at the time the investment is made, a given investment presents a significant risk of a loss of capital to the investor of an amount greater than the net return.
Essentially, HMRC will be evaluating the commercial risk of the company failing in the market.
The central issue with the Risk-to-Capital Condition is, as HMRC concedes in their internal manual, that there are no prescribed definitions of ‘growth and development’, ‘long term’ or ‘significant risk’.
As a result, this makes this a subjective decision based on interpretation. As HMRC stated on a recent webinar, “Each inspector will look at an application and view it on its merits. Each inspector obviously can interpret things in a different way……”
Venture Capital Schemes have been designed to encourage the patient capital investor. In this light, HMRC would be expecting the investor to hold their shares for longer than the three-year minimum requirement.
In addition, any indication that the future operation of the company could be compromised to enable investors to exit their investment would be seen as contrary to the objective to grow and develop in the long term.
Broadly speaking, a company that is created solely to deliver a project or a series of projects would not be considered to have objectives for long-term expansion.
This type of company, often referred to as a Special Purpose Vehicle, that would generate a certain amount of money once the project is complete, either through a steady income stream or gains on disposal of the asset created, would not be eligible for the tax reliefs under Venture Capital Schemes.
In evaluating the net investment return from a risk perspective, HMRC will include any income, such as dividends, interest payments or other fees, as well as capital growth and, potentially, the amount of upfront Income Tax relief the investors would be eligible to claim.
If the investment is in any way protected, for example by assured future income streams or capital repayment, the investment is unlikely to meet the risk condition.
However, the potential future return to an investor from the genuine growth the company expects to realise should the company be successful is not considered. As long as there is a significant risk at the time of the investment, the prospect of potential large returns in the future is not compromised by the risk condition.
It is important to remember that HMRC has the right to clawback the tax reliefs granted under Venture Capital Schemes either to the company or an individual shareholder if all the conditions are not met throughout the relevant period. In broad terms, the relevant period is three years from the investment.
As a result, it is not simply a matter of presenting a qualifying case at the time of applying for the initial tax relief, it is also about delivering on the plans and strategies through the relevant period.
If you have any questions or concerns on the Risk-to-Capital condition or Venture Capital Schemes in general, 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.
|
|
As part of the government’s ongoing commitment to make the United Kingdom a centre for knowledge advancement, there are attractive tax relief schemes available for Research and Development.
Whilst tax relief on R&D has been in existence since 2000, in the past, the process of making the claim was cumbersome and time-consuming.
The government has given clear instructions to HMRC to simplify and accelerate this process with the overwhelming majority of companies qualifying for Small and Medium Sized Enterprises (SME) R&D Relief.
Our Top Tip is to apply to HMRC for the R&D Advanced Assurance which, broadly speaking, guarantees that for the first three accounting periods, HMRC will allow a claim for R&D Relief without further enquiries. The process takes a couple of months to complete with HMRC but does give certainty.
R&D Relief would have the impact of reducing the Corporation Tax liability for your business if you are making a profit.
For start-up and early stage businesses making a loss, this R&D Relief can be converted into a Tax Credit payment which could provide vital working capital. As the model below shows, for every £100,000 spent on qualifying R&D activity, there is a potential Tax Credit payment of £33,350.
| Total R&D Expenditure | £100,000.00 | |
| R&D Multiplier | 130% | £130,000.00 |
| R&D Tax Relief: Enhanced Expenditure | £230,000.00 | |
| Tax Credit Rate | 14.50% | |
| Tax Credit | £33,350.00 |
These rules apply for companies that qualify for the Small and medium sized enterprises (SME) R&D Relief. The qualification thresholds are:
Larger organisations can claim a Research and Development Expenditure Credit (RDEC) which is currently 11% of qualifying expenditure.
A point to note is that 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, RDEC would apply.
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.
We recommend keeping a Technical Journal throughout the cycle of the project to record the activities undertaken and the challenges encountered. The higher the level of the challenges, the easier to validate that there was uncertainty. Remember, the HMRC teams are tax officers not technologists so steer clear of jargon.
If you are content your R&D project qualifies, then you can claim tax relief on revenue expenditure in the areas outlined below:
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 is £200,000 per annum. This allowance enables qualifying capital costs to be fully expensed in the year of acquisition rather than being depreciated over time.
There is a cost in preparing and submitting an R&D Relief claim and a benefit of having expert advice but the fees should be proportionate.
The perceived scale of the challenge and the associated costs means that the HMRC have estimated that only a little over 10% of companies entitled to R&D Relief have made a claim. If you have not done so for prior years, all is not lost! You have up to two years after the end of the accounting period in which the R&D activity was undertaken to make a claim.
At CooperFaure, we have worked with many clients to ascertain whether 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.
Our philosophy is to provide an affordable, personal service that starts with a conversation about your business and an honest appraisal as to whether you would qualify for R&D Relief.
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 Chancellor of the Exchequer used the Autumn Budget in the UK to unveil some significant tax changes.
However, for small businesses and many self-employed, the best news was that the government has listened to the vast number of representations, including those of CooperFaure, and have committed to maintain the VAT compulsory registration threshold at £85,000 for two years from April 2018 while a wider consultation is undertaking on the design and level of the threshold.
Among the key proposals in the Budget are:
There was welcome news on the doubling the annual allowance from 6th April 2018 for people investing in knowledge-intensive companies through the Enterprise Investment Scheme (EIS) to £2m and the annual investment those companies can receive through EIS and the Venture Capital Trust schemes to £10m.
However, there is a commitment on introducing a new test to reduce the scope for investment in low-risk businesses through these schemes together with the Seed Enterprise Investment Scheme.
This will be a principles-based test to determine if, at the time of the investment, a company is a genuine entrepreneurial company.
For the tax reliefs to apply on investments from 6th April 2018, the requirement will be both that a company has objectives to grow and develop and that there is significant risk of loss of capital. In other words, where the amount of the loss could be greater than the net return to the investor.
The HMRC will cease to provide Advance Assurances on proposed investments that would appear to meet the new conditions from the date of the publication of draft guidance which is yet to be confirmed.
For contractors, there may be troubled time ahead. Despite the HMRC’s constant reassurance that this would not be the case, the Budget Report states, “The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public-sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.” The government has committed to a full consultation in 2018 on this.
Over the weekend, we will be publishing a detailed review of the Budget together with our 2017-18 UK Tax Guide.
In the meantime, if you would like to discuss how the Budget or the new measures that come into effect from April 2018 will affect you, please email us at tax@cooperfaure.co.uk.
The 2017 UK Budget will be delivered to parliament by the Chancellor of the Exchequer on Wednesday this week and, in advance of this, the press has been awash with speculation of what may be included.
Whilst much of this is driven by special interest groups, a good measure is ‘kite-flying’ by the government to gauge the public reaction to mooted proposals. It is clear that the public finances are in a perilous state. Rather than overtly increasing tax levels, there seems to be more appetite to reduce tax thresholds or reliefs to bridge the gap, with entrepreneurs and investors potentially paying the price.
As ever, CooperFaure will be streaming a live Twitter feed whilst the Budget is being delivered followed by a digest newsletter on Wednesday evening and a detailed review on Thursday morning.
In particular, we will be watching and reporting as to whether any of the following three measures are introduced:
A Reduction to the VAT Registration Threshold
The current annual turnover threshold where a business has to register for VAT is £85,000. The Office for Tax Simplification undertook a review earlier in the year which outlined that this level was one of the highest in the world and a potential deterrent to business growth. It suggested that by reducing the threshold to the European Union average of £26,000 it would add around 2bn to the current annual VAT raise of £120bn.
However, no account seems to have been taken on the practical impact on the small business or the self-employed person that would be corralled into VAT for the first time.
For those whose customers are individuals and, therefore, unable to reclaim the VAT, it would mean either a 20% price increase or the business absorbing the VAT into their current prices. Not to mention that VAT is a complicated system that, in many cases, would create an additional cost for the professional support to ensure that the VAT return submissions are correct.
The likely reality is that cutting the VAT threshold would actually result in many small businesses ceasing to trade.
A Change to the Enterprise Investment Scheme Rules
Another review this year, this time carried out by HMRC, was into Patient Capital, the mechanisms that allow individual investors to claim tax relief on their investments into UK incorporated businesses.
Under particular scrutiny was the Enterprise Investment Scheme that allows the individual investor to claim 30% of their investment in a qualifying company as an Income Tax relief. The view taken was that the scheme was focused more on the tax incentives for the wealthy rather than the investment.
As a result, three options have been floated:
Although HMRC figures show that £1.9bn was invested under Enterprise Investment Schemes in the 2016-17 tax year, no account seems to have been taken on the impact on both early stage and developing businesses if the rules are changed which are potentially catastrophic.
These schemes are a vital lifeblood and, if investors are not incentivised to take a risk with their money, as there are no clear alternative sources of funding many businesses will stall or fail.
Changes to the Taxation of Dividends
In the spring Budget earlier in the year, the Chancellor announced that the annual tax-free Dividend Allowance would be cut from £5,000 to £2,000 with effect from the 2018-19 tax year.
The snap General Election resulted in this measure being dropped from the trimmed Finance Act.
However, the expectation is that, at the very least, this will be re-introduced with further speculation that the Dividend Allowance may be abolished completely or the tax rates on Dividends increased.
At the moment the tax rate on Dividends for a basic rate tax-payer is 7.5% compared to 20.0% Income Tax. For a higher rate tax-payer, the rates are 32.5% and 40.0% respectively and, for an additional rate tax-payer, 38.1% and 45.0%.
Closing the gap between the tax level on dividends and on other income is seen as an easy win for the Treasury.
However, remunerating business owners and investors through dividends based on the success of the business is a key financial strategy that encourages growth by reducing the burden on operating costs.
At a time of great economic uncertainty, it is counter-intuitive to make the landscape less attractive either to establish a business or to encourage a business to thrive and prosper. All three of these measures are fraught with risks that appear not to have been factored into the stark mathematical calculations.
As has been seen countless times, the effect of tax changes can diverge spectacularly from the anticipated result. For example, when the Off-Payroll Working Through An Intermediary, commonly known as IR35, was introduced in April 2000, the expectation was that there would be an additional Income Tax and National Insurance raise of £300m a year. In reality, a Freedom of Information response exposed that only £9.2m had been raised in total between the 2002-03 and 2007-08 tax years.
As was seen with proposed change to the National Insurance rates for the self-employed in the last Budget, a backlash of public opinion can cause a hasty reversal of policy. If any or all of these measures are introduced in the Budget, we encourage everyone to make their voice heard.
