Steve Livingston

Author Archives: Steve Livingston

7 R&D Tax Credit Tips

  1. Don’t assume your company doesn’t qualify – even if your accountant has discounted it or perhaps not even mentioned it (in fact that might be all the more reason to check it out!)
  2. It doesn’t matter whether your company is profitable / tax paying in a financial period or loss-making – R&D tax relief can benefit you and release cash into your business in both cases
  3. Think about R&D tax relief and how it might apply to your company as early as possible. This way you can ensure that you are capturing relevant supporting information, documents and costs as you go along – rather than trying to cast your mind back and rebuild retrospectively which might lead to sub-optimal claims
  4. Don’t discount R&D tax relief if you carried out eligible activities a couple of years back thinking you’ve missed out – you can make a retrospective claim for accounting periods ending in the past two years. So at the time of writing this post (20 June 2016), say you have a 30 June financial year end then the periods ended 30 June 2014 and 30 June 2015 are still open and eligible for R&D tax credit claims.
  5.  Don’t wrestle with the definition of what activities qualify for R&D tax relief on your own – many companies wrongly count themselves out when a quick chat with a R&D tax specialist might have helped them understand how they do qualify. Many company owners are stunned at the breadth of the R&D tax relief.
  6. Don’t think you have to leave your current accountant to access specialist R&D tax advice – most R&D specialists will supplement the good work your accountant is already doing for you with their specialist R&D tax services so this needn’t upset your ongoing accountancy support relationship.
  7. Think about how the UK R&D tax incentive can fit into your overall funding profile – so tax advantaged funding such as SEIS / EIS can typically be used in harmony with the R&D tax incentive. Watch out for grants as these can impact adversely on the levels of tax relief available under the R&D tax incentive. Cash tax breaks such as the Patent Box can be used alongside the R&D tax relief. As you can see, thinking about how this can all fit together sooner rather than later will help optimise available funding.

SEIS / EIS: When it pays to be Ordinary!

I know it’s not cool to aim for being ‘ordinary’ and its not a label that you’ll want attached to your business but when it comes to your SEIS / EIS shares this is exactly the label you want – ordinary shares.

SEIS / EIS shares must be ordinary non-redeemable shares and carry no preferential rights to dividends or assets on a winding-up.

If you have institutional or other non SEIS / EIS investors then things can become more complex, if they say want preferential rights in relation to certain aspects of the business.

In this scenario, differing share classes would typically come into play with say ‘A’ shares for the founders, ‘B’ shares for VCs (both classes may have some preferential rights to varying degrees) and ‘C’ shares for SEIS / EIS investors – these being the ‘highest risk’ ordinary shares.

No one-size fits all but this gives you an idea. If you are going to go down the road of different share classes then bear in mind that this will require formal legal procedures to give effect plus amendments to the Articles of Association of the company (this goes beyond the scope of this course – get yourself a decent lawyer!).

This is a just one of a series of emails from our SEIS / EIS course – you can subscribe to the course below:

SEIS / EIS is on the rise!

Judging by the rapid uptake in the number of calls and enquiries we are receiving on a weekly basis from entrepreneurs and founders looking to ensure that their company is SEIS / EIS tax ready – I think it is fair to say that SEIS / EIS tax benefits are now getting the attention they deserve!

So if you are a star company looking for rapid growth and you’re in search of investment, then you really need to get up to speed with the tax benefits that SEIS / EIS government tax incentives can potentially bring you.

I’m afraid to say that it can be quite complex in parts – good news is that we’ve set up an email course to help you swot up!

You can access it here:

Not just SEIS has trading timelimits – EIS does too!

The requirement for a company to have a ‘new qualifying trade’ (i.e. trading for less than two years) in order to qualify under SEIS is now fairly well trodden ground.

Less well trodden is the new requirement for EIS qualifying companies to have commenced trading (had first commercial sale) within the past seven years (there is an extension to 10 years for knowledge intensive companies). This applies to EIS shares issued from 18 November 2015.

There are various potential exclusions to this rule, but particularly pernicious are the rules related to groups – what about this for an example:

Company E was incorporated on 1 February 2016. It used private investments to acquire the issued share capital of company F on 1 March 2016.

Company F was incorporated on 1 February 2014 to trade as a brewery. Its first commercial sale was made on 1 June 2014. On 1 March 2015 company F acquired a pub which had started to trade on 1 April 2005.

Company E’s first commercial sale was therefore on 1 April 2005 and it does not meet the basic age condition

Source HMRC

Seems fairly tenuous and serves to show just how careful companies will need to be in carrying out their due diligence regarding their qualifying status under EIS prior to issuing shares.

SEIS / EIS – A simple issue, yet often not easy…

It might be useful to revisit one crucial factor in planning for SEIS / EIS:

The issue of new ordinary shares in exchange for a cash investment.

Simple, right?

Then day-to-day reality steps in….

The shares are issued before the cash has cleared – oops!

The shares are issued way after the cash has cleared – oops!

HMRC could contend that in the first case the cash could never have been for the shares as they were issued before the cash cleared (two unrelated transactions, in their eyes) and in the latter case that it was a loan conversion – neither qualify.

What’s the solution?

Arrange so that the shares are issued on the same day as the cash clears in the company bank account. There can then be little argument over what the cash was for.

Simple; rarely easy!

This post is a sample from our SEIS / EIS training course that you can access by subscribing below:

Tax Matters: R&D tax credits; Patent Box plus SEIS / EIS course

Here’s a round up of some recent financial & tax news that might be of interest – you can find an audio download version of this post below:

Calls for quarterly R&D tax relief for SMEs
In an effort to boost SME cashflow, there are calls for the Government to make the UK R&D tax incentive a quarterly rather than end of year tax relief. Currently SME companies claim R&D tax relief retrospectively. Large companies can, however, reduce (in year) quarterly instalment tax payments that they are required to make thereby securing the benefit of the relief earlier. This measure would help level the playing field. This makes sense – we’ll have to wait and see…

March Budget 2016 – Pension countdown
George ‘O’ will step up on 16 March 2016 to deliver his Budget Statement and the big news is expected to be regarding restrictions on income tax relief on pensions for higher rate tax-payers.

Action point: Consider making pension contributions in advance of the Budget date.

Patent Box changes afoot – act now
New, more stringent rules will apply to companies that elect into the Patent Box tax incentive after 30 June 2016. This follows the ‘beating’ this UK Gov tax incentive received from other EU states following its introduction in 2013 (but for how much longer in the light of a possible Brexit….?).

Action point: If you have a patent or patent pending, consider electing in before 30 June 2016.

Get ready for new dividend tax rates
From 6 April 2016, new dividend tax rates will apply that results in an almost complete shake-up of the fairly established remuneration structures for most owner-managed companies.

Action points: Run some calculations to see how you might be affected and consider paying further dividends in advance of the 5 April 2016 deadline. Note that companies that qualify for R&D tax relief might have some of the down-side offset by receiving a greater proportion of the remuneration in the form of PAYE salary / bonus and claiming enhanced R&D tax relief (dividends are not eligible).

Buy-to-let changes – traps for the unwary
I probably don’t need to tell you more about the widely publicised restrictions being placed on buy-to-let interest relief etc but watch out for the Stamp Duty Land Tax (SDLT) 3% surcharge that can bite in what might otherwise be fairly innocuous circumstances…

For example, buy a new residential house before selling old residential house = 3% ouch! You might be able to receive a refund in these circumstances but the initial additional SDLT outlay can be significant and is yet another case of a tax sledge-hammer to crack a nut!

SEIS / EIS Course Launch
By popular demand, we have set up a new course setting out in the ins-and-outs of the hugely popular (yet often misunderstood!) Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

These UK Government tax incentives are growing in popularity – especially with the growth of crowd-funding platforms such as Crowdcube. We have helped and continue to help 100’s of companies navigate and make the most of these tax reliefs which can be quite tricky to navigate for the uninitiated.

If you are a company founder or considering diversifying into business angel investing yourself, you should benefit from this course.

You can sign up to receive the course via email here:

What’s so good about R&D tax relief?

The R&D tax relief is aimed at entities that are registered for UK corporation tax, so primarily UK companies.

The relief itself is administered through the company corporation tax filing regime.

What are some of the key benefits?

  • Cash paid to companies that are pre-revenue and / or loss-making to reward them for undertaking R&D work – even if no tax has been paid by the company as yet!
  • Reduction in corporation tax payable or refund in cash for those companies that are profitable
  • Average claims for SMEs of c£50,000+
  • Can be claimed year on year
  • Administered by dedicated specialist HMRC R&D Units across the country
  • Typical HMRC review process of 28 days from submission
  • HMRC Advance Assurance process for first time claimants
  • Can go back two years retrospectively to claim for earlier projects
  • No matched funding
  • No equity to give away

Despite these benefits, it is surprising how many companies continue to overlook this government tax incentive and potentially miss out.

With this in mind, we have recently set up a new course on the UK R&D tax relief that might prove to be a useful primer for founders or entrepreneurs who would like to learn more about this attractive UK tax incentive and how you might benefit.

You can subscribe below:

 

How to claim enhanced Research and Development (R&D) Tax Relief?

how claim enhanced rd tax relief

The UK Research and Development (R&D) Tax Relief Scheme is delivered via HMRC’s corporation tax filing system.

After each financial accounting period, a company is required to prepare statutory accounts along with a corporation tax computation.

The corporation tax computation calculates the tax liability of the company for the period (if profitable) based on the statutory accounts. If pre-revenue and / or in development mode then the corporation tax computation will calculate the company’s losses for the period.

The R&D tax claim figure is entered into the corporation tax computation and CT600 corporation tax return to claim the notional enhanced R&D tax deduction.

The corporation tax return and supporting computation is filed online with HMRC. It is recommended that the company also prepares a report outlining the nature of the R&D work and why / how it satisfies the HMRC definition of qualifying R&D plus detailed supporting claim calculations – or you could get an R&D tax specialist to help :)

If profitable, this will result in a reduction in the corporation tax payable.

If loss-making, the company can elect to surrender the enhanced tax loss for a tax credit payment from HMRC. Or it could elect to carry the enhanced tax loss back twelve months (if profitable) or carry forward to utilise in future periods.

HMRC aims for a 28 day turnaround time in reviewing and processing R&D tax claims.

If you would like to learn more, why not subscribe for our R&D Tax Relief Training Course:

Launching our new SEIS / EIS training course

We are delighted to launch our new SEIS / EIS training course. This free course will be delivered via email in a series of bite-sized chunks.

Aimed at company founders seeking SEIS and / or EIS investment, the course should prove to be an excellent primer in helping entrepreneurs educate themselves on how they can make the most of the generous opportunities offered by these government tax incentives – whilst steering clear of some of the pitfalls!

Business angels (both budding and existing!) could also benefit from this course as it sets out in plain English how the schemes operate and points to watch out based on practical experience of working with these schemes on a daily basis.

We hope you find benefit in this course and look forward to your feedback.

Sign up via the form below to get started immediately:

FGB004 – Jonathan Lea on legal issues to consider in closing a funding round

Jonathan Lea of the Jonathan Lea Network joins me this week to discuss legal issues to consider when seeking to close an early stage funding round.

Legal issues to consider when closing a fundraising round

In this podcast we cover:

  • What documents most investors will typically expect startup founders to have in place – from investors’ agreement to Articles + shareholders agreement etc
  • Managing the process of investors committing and exchanging documents at different times
  • Potential pitfalls to watch out for if you are seeking to issue shares under SEIS / EIS
  • How to structure a joint SEIS / EIS funding round

You can read more that Jonathan drafted on this subject here in this post.

Resource of the Week

This weeks’ resource of the week comes courtesy of Jonathan himself – it is Cloud Employee.

Your chance to access overseas software development support sourced on your behalf by a UK company at a fraction of the normal cost – with rates as low as £8 ph.

Head over to cloudemployee.co.uk for more…

Get interactive!

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