How to calculate your company car tax benefit for 2014/15

Although having a company car can appear to be a ‘perk’, if you delve a little deeper the tax rules are becoming increasingly onerous for those directors and employees who are ‘lucky enough’ to have them….

A ‘Benefit in Kind’ tax charge is levied on the ‘lucky’ director / employee under the company car tax benefit rules and this charge is now based on the Co2 emissions with those cars (as you might expect…) emitting the lowest C02 emissions having the lowest benefit in kind charge with a sliding scale upwards to hammer those driving the ‘dirty cars’!

HM Revenue & Customs has recently updated their online calculator to take into account the scale charges for the year ahead from 6 April 2014 to 5 April 2015.

You can find the HMRC company car tax benefit calculator for the tax year 6 April 2014 – 5 April 2015 here (or copy and paste the following link into your browser: http://www.hmrc.gov.uk/calcs/cars.htm).

So if you’re contemplating getting a new car (and you’re not sure which route to acquire it? e.g. company car or personally) then this calculator could prove helpful for you in making that decision.

 

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Which apps have claimed your £1bn of mobile space?

The space on the homescreen of your mobile phone is some of the most valuable real estate in the world – worth a cool £1bn to app developers!

Here are the select few apps that have currently made it onto the homescreen of my Google Nexus 4 phone – they are, I suppose, my ‘£1bn apps’:

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Capsule CRM – the best CRM solution ever! (also, a client (not biased, honest!))

Google Music – Liked Spotify but liking Google Play too. Helped by the fact its a couple of £’s per month cheaper for what appears to be pretty much the same range of music. Interface not quite as user-friendly as Spotify though and downloads seem to take longer…

Evernote – still hard to beat to capture those lists and thoughts. Google Keep has a long way to go IMHO.

Plume – Twitter interface. Not thrilled with it I must confess but it does the job. Free version (cheap-skate I know!) so I get those annoying adds. Wish there was better search capability.

DoggCatcher – my podcast hub. I listen to tonnes of podcasts so this app gets well used. A good app overall but I still miss Tunecast, an app I used to use on iOS (not available on Android as far as I am aware). Again, search facility is lacking in functionality.

Google+ – increasingly flicking to Google+ in preference to Plume (Twitter). I like the scrolling of the Google+ app and the visual qualities are great. My photos are automatically uploaded from my phone so its becoming an increasingly powerful and appealing hub. Watch this space.

Linkedin – Linkedin is an important source of contacts for my work so I use it a fair amount. The app is okay but is still no competition for the web.

Xero – our accounting package of choice. Loved by our clients. Loved by us.

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Feedly – I mourned the day that Google Reader was disbanded but Feedly has picked up the reins well for my RSS feeds. Don’t dip in as often as I used to (not sure why really?) as the app has got better and better. Slick interface and good visuals.

Audible – I chew through audiobooks when on journeys in the car so this app is an absolute must for me. Fortunately it works well and allows for audiobooks to be purchased and downloaded directly through the app which is perfect (didn’t used to be possible).

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Amazon Kindle – again, like Audible and DoggCatcher this is one well worn app on my homescreen. I’m surprised the glass isn’t wearing away where the app sits as I keep on clicking on it! App works well. Can click into Amazon Kindle store to add new ebooks (this functionality was removed by Apple on my iOS but not sure if this is still the case?). Love the way you can sample books plus the recommendations along the bottom of the screen. All very neat.

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YouTube – enough said

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Google Play Store – from where the fun and functionality is sourced!

Google Chrome – the browser of choice. Surely!

Lost track of what this is called? Google Hangouts / Talk / Chat – I’m lost! Anyhow, it seems to work well for texting and chat.

Gmail – works well. Easy to switch between accounts. Been toying with Boomerang. Any other suggestions?

What apps get onto your £1bn space on your phone? Which apps should I be testing?

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Two common R&D tax credit stumbling blocks for start-ups

Solar cell technology based on organic materials

Picture the scenario: a new technology startup. The founders invested £250,000 into the development of some new technology. The company is burning through the cash at a rate of knots and so they’re looking forward to recouping a chunk of it by claiming R&D tax credits under the ‘R&D tax credit scheme’ – something they’d heard about somewhere not long ago… In their minds, the tax credit had already been ear-marked for the next phase of work.

But two HUGE (yet surprisingly common) issues were about to put a hole through the R&D tax claim:

  1. Most of the costs were subcontracted to third party developers. This is fine in principle but under the R&D tax incentive rules such costs are restricted to 65% of the costs incurred (where the subcontractor is unconnected). The logic here is to eliminate the ‘profit’ element made by the subcontractor on the R&D work to get closer to an employee scenario. So here, in one swoop, almost half of the qualifying R&D costs and therefore claim had gone…!
  2. The company’s accounting period ended on 31 March 2012 and, for periods ending before or on this date, any R&D tax credit is capped by the PAYE / NIC suffered by the company in the period. This company had no employees (they’d subcontracted out all of the work) and had paid themselves no salary so there was £nil PAYE liability and therefore £nil repayable R&D tax credit. If the accounting period had ended just one day later, the company would have fallen within revised rules whereby the PAYE / NIC cap falls away. Ouch.

Of course, we should not lose sight of the fundamental issue of whether the company’s activities qualify for R&D tax purposes in the first place? If so, the company could still get a good result overall (a significant enhanced loss carried forward in the 31 March 2012 period end to offset against future trading profits and a potential repayable tax credit on qualifying activities and costs incurred in its next period ended 31 March 2013 and onwards) – just not perhaps as good as the founders had understood from the outset.

Fortunately, given the relaxation in the rules for accounting periods ending after 31 March 2012, the PAYE cap is no longer a problem – although it can still bite for retrospective claims (which can be made until 31 March 2014).

This is often a problem with tax incentives – there are almost always traps for the unwary…

Image: BASF – The Chemical Company via Compfight

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How to apply for advance assurance for SEIS / EIS

HOT OFF THE PRESS: We’ve just launched a brand new online course that shows you exactly how to complete and file your SEIS / EIS advance assurance application with HMRC. We walk you through every stage of filling out the form plus share some additional resources to help ensure a smoother passage through HMRC. Access it by clicking here. [Use the code: SEISAA2017 to get 50% off in January]

A short overview of how to apply for advance assurance from HM Revenue & Customs that your company is a qualifying company for the purposes of raising funding under the Seed Enterprise (SEIS) or Enterprise Investment Scheme (EIS). [Update – the form looks different now and is an online form – check out our course for the latest version (Jan 2017)]

You can find the SEIS / EIS advance assurance application form here.

The process normally takes 30 days for HM Revenue & Customs to issue advance assurance or revert back with any questions.

You can seek specialist professional SEIS / EIS assistance here.

R&D Tax Credits – Don’t miss your claim!

Statistics from HM Revenue & Customs suggest that less than 0.25% of UK companies are taking advantage of this fantastic Government incentive which can apply to all companies across all sectors.

The R&D tax credit scheme has been in existence since 2000 and the tax relief available has got better and better year on year.

It is important that you investigate the potential for your company to make a claim – you could seek some professional specialist R&D advice here.

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SEIS | Need to know facts for startups

SEIS Need to know tips for startups from Business N2K on Vimeo.

A short 5 min overview of the Seed EIS tax incentive and need to know facts and tips for startup founders.

Remember, SEIS requires a subscription for shares – loans do not work.

Look forward to your feedback and experience of using the scheme in the comments section below.

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Maximising the impact of the 80/20 principle

Screen Shot 2013-09-03 at 11.49.29I’ve been enjoying a good book by Google Adwords legend Perry Marshall on applying the 80/20 principle to sales and marketing: 80/20 Sales and Marketing

Like Perry, I found that Richard Koch’s seminal book The 80/20 Principle: The Secret of Achieving More with Less had a huge impact on me and the way in which I viewed business and, in all honesty, the world in general. After immersing yourself in this book you start to see 80/20 patterns all around.

In essence, the theory holds – with frightening consistency – that 20% of inputs have 80% of results.

In fact, the only noticeable criticism of the 80/20 principle is that it appears to be moving closer to 90/10!

So a handful of customers or clients might make up 80% of profits or worse, a handful of customers might cause 80% of the headaches!

Seeking out the vital few in every situation can have huge benefits particularly in relation to our most precious resource – time.

What makes Perry Marshall’s interpretation extra useful is how he drills down into the fractal nature of the 80/20 principle. So 20% of your clients might make up 80% of your profits but you can drill down further – in this case, 20% of your top 20% of customers will make up 80% of the 80% of profits. Drilling down repeatedly helps us to seek out the vital few.

Also, look out for the Power Curve in terms of how to maximise pricing opportunities. I won’t spoil this but the book is well worth the investment and it provides links to an online tool for testing the Power Curve. I would recommend Richard Koch’s book as a primer if you haven’t already read it.

I am currently reading Think Inside The Box: Discover the exceptional business inside your organization
which looks at useful and interesting ways of applying the 80/20 principle within organisations. A good recommendation from the 80/20 man himself, Richard Koch.

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Chat with Ian Sanders: Entrepreneur, Writer, Author, Ideas guy

Ian Sanders Chat from Business N2K on Vimeo.

Here is a talk with Ian Sanders (entrepreneur, writer, published author and all round ideas guy) on business, entrepreneurship, story-telling, productivity, education and making it as a successful business in 2013.

Please note that this talk was recorded back in Feb 2013 and is now released having solved some technical issues – entirely my fault ;)

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R&D tax: 5 common misconceptions

I could probably give you 25 misconceptions that I hear on a daily basis but, for now, here are 5 common misconceptions regarding the UK R&D tax relief:

  1. “You need to have paid corporation tax to receive an R&D tax credit cash payment from HMRC” – wrong! HMRC will help you supplement your development costs by paying you a tax credit equivalent to roughly 25% of your qualifying R&D spend (if loss-making).
  2. “You need to have paid sufficient PAYE / NIC to receive an R&D tax credit cash payment from HMRC” – wrong! This requirement was dropped for accounting periods ending on or after 1 April 2012.
  3. “I must have missed the boat as this is the first I’ve heard of R&D tax relief being relevant to a company like mine and we incurred our development expenditure in last year’s accounts” – wrong! We can apply claims retrospectively over the accounting periods that ended in the past two years.
  4. “My company is too large to be eligible to make claim under the preferable SME R&D tax regime” – probably wrong! The SME definition for R&D tax covers probably 90%+ of the UK companies i.e Less than 500 employees plus either turnover of less than €100m or balance sheet total of less than €86m.
  5. We don’t have an R&D unit with specialists in white coats – probably one of THE most common misconceptions – fear not, the R&D tax relief applies across all sectors and industries as technological advances can happen anywhere…

Please get in touch if you’d like to learn more  – plus no doubt allow us to dispel the other 20 misconceptions…!

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Has your company missed out on EMI too?

Screen Shot 2013-07-01 at 20.00.45Enterprise Management Incentive share option schemes (or ‘EMI’ for short) have long been a useful tool for entrepreneurial fast growing companies that wish to both tie-in key employees and incentivise them tax efficiently with the promise of jam tomorrow in the form of a slice of the share equity.

The peculiar thing as evidenced from the chart above is the apparent lack of take-up by start-ups and SMEs – even ignoring the flat-lining in recent years which could be attributed to the general market malay – in that only approx 7,500 companies have an EMI scheme across the entire UK…! Which begs the question:

Is your company missing out on an EMI share option scheme?

Before going any further, its worth having a brief recap on the key tax benefits of an EMI share option scheme for qualifying companies:

  • No income tax or NIC cost on grant or exercise of the EMI options
  • Growth in shares under EMI option subject to capital gains tax (CGT) rather than dreaded income tax (45% anyone?!)
  • Potential for Entrepreneur’s Relief for EMI option holders even though they may ultimately hold less than the normal required 5% shareholding plus the 12 months accruing from grant of the share option (a MASSIVE recent change)
  •  Corporation tax deduction for the company on exit in most cases.

Admittedly the entrepreneur’s relief relaxations (which I have long banged on about!) are fairly recent changes; but still, the benefits are plain to see, compared to say unapproved share options which normally have income tax and NIC written all over them…!!!

Let’s not forget that for cash-strapped start-ups and early stage companies, the ability to give highly valued employees a stake in the company with no cost outlay is a huge deal especially in the current economic climate – also, note how the company can get a tax deduction (on the increase in value between the exercise price and market value) even though the company has not incurred an expense as such!

There is also flexibility as to how and when employees can exercise the EMI share options  e.g. with some being structured as ‘exit only’ options (ie the EMI options vest only minutes before a sale of the company) and /or performance criteria can be included to keep the relevant employees on their toes!

So why poor take up for EMI share schemes in the UK?

Here’s my take from experience of talking to entrepreneurs about structuring tax efficient employee remuneration planning and EMI’s in particular:

  1. Unawareness of the scheme – sad but true, many accountants have not advised their clients that such a mechanism exists to incentivise their employees tax efficiently for both themselves and the employing company. 
  2. Too complex & costly – this is normally a misconception. Okay, the rules can be cumbersome in parts and there are some strict eligibility requirements but if you work with advisers who have implemented EMI option schemes before, this should be a problem. The costs should be far outweighed by the savings – oh, and  our professional costs for setting up EMIs are tax deductible!
  3. Bad experience in a ‘previous life’ – this can be an issue where unrealistic expectations are set when the option scheme is set-up and things don’t materialise as expected e.g. no exit occurs within the expected time-frame or if it does, the gains for the EMI optionholders turn out to be fairly paltry compared to the vision painted at the outset. Sometimes the very employees who suffered at the hands of a badly communicated EMI scheme set-up are now at the helm of their own company and are understandably fearful of inflicting the same disappointment on their own team. Managed well, this should not be an issue but it does come up…
  4. No clear exit plan – EMI’s are designed for entrepreneurial fast growing companies and, although a company can’t have an immediate sale on the cards when it sets up the scheme, it needs to have a time-frame and clear action plan for how it will allow its employees to realise the value they hold in the paper that will turn into shares. Like point 3, we’re down to managing expectations…

What’s your experience of EMI option schemes (good and bad)?

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