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One of the main benefits of operating through a UK Limited Company is that you are able to reclaim a substantial proportion of the expenses that you incur from the Company and these expenses are allowable against Corporation Tax.
To enable us to capture this non-billable expense information, we issue Expense Reports on a monthly basis by the close of the third working day after each month which we ask you to complete and return in time for us to validate the details and include the reimbursement of the expenses incurred in the monthly payroll run on the 25th day of the month.
Broadly speaking, non-billable expenses fall into three main categories – day-to-day expenses, recurring expenses and allowances.
Day-to-Day Expenses are those expenditures that change depending on the purchasing decisions of the Director(s) and are supported by a receipt.
We have identified the following main categories:
As a guide, spending of up to £20.00 on a meal can reasonably be categorised as Subsistence whereas spend of over £20.00 would be deemed to be Entertainment. From a tax perspective, there is a difference in the treatment of Entertainment incurred in the UK and overseas. Hence, we have included a category for each. Motor Expenses are for the variable elements such as licences, repairs and servicing. Car Lease costs and insurance appear on the Recurring Expense schedule.
Recurring Expenses are those expenditures that occur regularly on a periodic basis and at least a portion of which can be treated as a business expense.
We have identified the following main categories:
The level of these costs that can be reasonably treated as a business expense depends on the circumstances of the individual but the benchmark for the Home Office cost elements is 25%.
For certain categories of expenditure, as an alternative to claiming the reimbursement of receipted expenses, the HMRC has set the following allowances that can be claimed:
Subsistence
Where you are unable to obtain a receipt and you are working on a client’s site but are not staying overnight, then a meal allowance can be claimed on the following basis:
Accommodation
Where you are unable to obtain a receipt, an allowance is available in respect of accommodation, meals and incidental subsistence costs, at the following rates:
Mileage
Mileage can be claimed for business-related travel including to and from your home to your place of work. The following rates are applicable:
| Vehicle Type | First 10,000 business miles | Over 10,000 business miles |
| Car | 45p | 25p |
| Motorbike | 24p | 24p |
| Cycle | 20p | 20p |
Incidentals
The maximum cost of incidental expenses of £5 per day in the UK and £10 per day if overseas can be claimed for each night that you have to stay away from home.
This is to cover costs such as laundry, personal telephone calls and newspapers.
One of the proposals that was announced in the Budget was to provide a temporary extension to the loss carry back rules for trading losses of both corporate and unincorporated businesses.
This newsletter looks at how the changes will apply to a Limited Company and next week we will be looking at the impact on unincorporated businesses, which covers sole trader and partnerships.
ΩFor a Limited Company, the existing rules are that a company incurring a trading loss in an accounting period that are unused against profits in that year can claim for the balance to be offset against the profits from the preceding twelve-month period.
Alternatively, the trading loss can be carried forward to set against trading profits in the future. There are restrictions but these only come into play when the profits exceed £5 million, only 50% of these profits are available for offset by carried-forward losses.
Should a Limited Company cease to trade, there is entitlement to Terminal Loss relief which allows unlimited carry back of trading losses of the final accounting period to set off against profits of the previous three years.
Under the new legislation, for accounting periods ending between 1st April 2020 and 31st March 2022, the carry back period will be extended to three years, with losses required to be set against profits of most recent years first before carrying back to earlier years.
No change is proposed to the current unlimited carry back of trade losses against the first year. However, for the extended relief, the amount of loss that can be carried back to the earlier two years is to be capped at £2,000,000 for each of the trading years. For group companies, there will be a group cap of £2,000,000 for each relevant period.
Normally, a carry back relief claim is made as part of the Corporation Tax return submission for the loss-making year. However, there will be the provision to allow a claim of up to £200,000 to made outside the Corporation Tax return process.
Let’s take the example of Company A that has current year (CY) trading losses of £400,000 and profits of previous periods as follows:
CY-1 – £150,000
CY-2 – £200,000
CY-3 – £300,000
Under the current rules, Company A would be entitled to claim carry back relief of £150,000 against CY-1 profits.
Under the new rules, Company A would be entitled to claim carry back relief for the full £400,000 with £150,000 against CY-1 profits, £200,000 against CY-2 and £50,000 against CY-3.
It is worth bearing in mind in this scenario that, if Company A went on to make a further loss in the next year, there would be no further carry back relief available as the unused balance in CY-3 would then be out of scope.
If the profit profile had been different as follows:
CY-1 – £300,000
CY-2 – £400,000
CY-3 – £300,000
Under the new rules, Company A would be entitled to claim carry back relief for the full £400,000 with £300,000 against CY-1 profits and £100,000 against CY-2.
This would leave an available balance in CY-2 of £300,000 which, for the next year, would be deemed CY-3.
A claim for carry back loss relief can be made once the amount of the loss has been established.
One of the benefits of modern cloud-based accounting software like Xero is that the amount of the loss can be established within days of the end of the accounting period. The Corporation Tax return submission flows naturally out of this process.
For businesses using other software or platforms which do not provide such an integrated solution, a stand-alone claim of up to £200,000 can be made under the provisions of Sch1A of the Taxes Management Act 1970 as soon as the loss-making accounting period has ended providing the losses can be quantified appropriately.
A claim under this process would require supporting documentation and evidence, such as draft accounts or management accounts, to enable the validity and accuracy of the claim to be verified.
Although the preparation for an Extended Loss Carry Back Relief can be made, HMRC will be unable to action the claim or process the repayment until Finance Bill 2021 receives Royal Assent.
Once this has happened, we expect HMRC to publish their guidance on the timeframe for the repayment to be made once a claim has been submitted.
To give you an idea of just how easy it is to make an application for Research and Development Tax Relief, we spoke to one of our clients who made a successful application. Jefferson’s Ice Cream started the process back in early May with a phone call to one of our advisers about how best to create a successful Innovation Report. On May 23rd the R&D claim pack was submitted and on July 3rd a tax credit payment was received. The amount was a little over £15,000 for the equivalent of one working day’s preparation of the report. If your company is undertaking any innovation in your field you can speak to one of our advisers to help get your application started. Listen to our interview with Christopher from Jefferson’s Ice Cream to get a sense of just how easy it is to generate some valuable cash flow for your business.
When Christopher first came across the Research and Development Tax Relief he was unsure if the scheme would apply to him as the owner of an ice cream business. He assumed the scheme was reserved for scientific and technological companies but after talking to our director Jon Cooper he realised how a growing business could also benefit from the scheme.
“To get back what we did was really worthwhile”
While the process will be different for each business, Christopher’s interview gives an idea of what might make up an Innovation Report. Christopher describes the research that went into generating idea, costing and ingredients that could be done at a desk, as well as the more practical work that went on in the kitchen. Something important that Christopher notes is to keep the application form in layman’s terms as it will be an HMRC tax inspector reading the Innovation Report, not industry experts. As long as your work can be shown to be innovative and unique, Christopher believes the main emphasis is to show the amount of work that has been undertaken in your research and not technical expertise or even an end product. Especially as the end product does not have to be successful in order to qualify for the scheme. Ultimately, the Innovation Report is only one or two pages worth of written evidence backed up with financial information. Christopher’s advice to other businesses interested in the scheme is to ‘be honest, don’t complicate it and listen to the advice’.
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.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.
To find out if you could be eligible for R&D Tax Relief all you need to do is to phone 0208 977 8655 or email welcome@cooperfaure.co.uk for an initial conversation that is free and without obligation.
Stay tuned for more in depth videos from the people at CooperFaure in the future!
If there are any topics you would like to be covered in future videos, or in a Q+A with our specialists, please let us know.
Here at CooperFaure we’re always trying to think of exciting new ways of how to engage with our clients. That’s why we’ve launched a video series called ‘Making Accounting Simple’ which aims to cut through the complexity of accounting, including this very important topic – Tax relief on investments.
This episode we sat down with our director, Jon Cooper and talked through the ins and outs of the EIS from a company’s and investor’s point of view (Tax relief on investments).
The Enterprise Investment Scheme (EIS) has been made available by the government to help small to medium sized companies grow by acquiring investments. It is one of four schemes available and it provides Tax relief on investments for investors who purchase shares. Therefore, it acts as an incentive for individuals to invest into small to medium sized companies and in turn assisting the government’s goal of growth. It is a win-win situation for both parties.
We at CooperFaure believe that EIS is a great scheme for most companies to attract investors in order to grow their company. We have assisted numerous clients with the EIS process and have found that as long as all the information is correctly provided to SCEC and all conditions are met there is no reason for the company not to be eligible for EIS.
We at CooperFaure can assist in compiling all of the following which is required for an Advanced Assurance Application:
There’s more for you to read regarding EIS in our blog – https://cooperfaure.designmindshost.com/enterprise-investment-scheme/
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.
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.