I have been salivating over the new Tesla Model S that has recently been introduced in the UK. It carries a fairly hefty price tag but given its space-age interior, high performance and ‘cheap as chips’ running costs (its 100% electric) its hard to ignore.
The good news for company owners is that there are some nice tax incentives that can sweeten a deal in getting your mits on one of these cars.
Ordinarily it rarely stacks up from a financial perspective to acquire a car through the company as the driver gets stung for high benefit in kind income tax charges and the company gets sloooooow tax relief in the company. 9 times out of 10 it makes more sense to acquire the company personally and take advantage of the Approved Mileage rates to claw back some of the running costs on business mileage. But there are a handful of exceptions – and this is one of them.
The Government wants to encourage people to invest in low Co2 emission and electric cars so they offer tax incentives. A Tesla Model S ticks all the boxes (for now…)
- As it is electric, you can get a 100% write-off against taxable profits in the company. This is huge. A £70k P85 Tesla Model S bought through the company (either outright or via HP) would save corporation tax of c£14k!
- There is 0% benefit in kind charge – watch out, this is scheduled to run out on 5 April 2015
- No road tax
- No London Congestion Charge
There have been tax incentives like this around for a while for low emission cars but, to be frank, these cars have been fairly uninspiring.
The Tesla Model S is a bit of a game-changer in this respect and hopefully opens the doors for more innovative performance cars that both help the environment whilst being functional and fun too (oh and tax friendly!).
Today was like many others, but perhaps a world away from just a decade ago for an accountant and client working together.
We wrestled through bank reconciliations, talked through accountancy adjustments, mulled over cost-drivers and shared insights around areas for growth.
We were face to face and looked at the same screen with the same figures. Perhaps nothing particularly strange so far.
Yet we were 100s of miles apart.
We worked together all day. Like we were in the same office (but we were far from it). This was made possible by Google Hangouts, online banking and cloud accounting software (Quickbooks today).
Don’t be restricted by geographical boundaries when seeking financial and tax advice for you and your business. Get the best accountant and tax advisor you can – no matter where they might be….
Sometimes there is little alternative but to issue shares to investors, employees and other stakeholders. If the company’s an early stage company then it has little else to ‘sweat’ to release some cash.
You might be able to benefit from the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS) but – although technically related to your company – it is the investor that pockets the tax relief (not you). You might be able to squeeze some more cash out of the investors by virtue of the tax relief they will receive but (as the rules currently stand) you have to issue shares to them in return for their investment.
Whilst money for salaries is tight, employees may benefit from an approved share option scheme like the Enterprise Management Incentive Scheme (EMI). Although they only hold a piece of paper entitling them to the shares at some point in the future (say on an exit), you must still take into account the post dilution shareholdings once their shares are issued.
So you started with 100% of the company and very quickly you might find that your shareholding is down to not much over 50%. And then there’s that big VC round you’re contemplating in a year or so – further dilution to come…..
There is only ever 100% to divide up. For each 1% that goes it has gone (probably) for ever. Often it is a price worth paying as the old saying goes,
“its better to have 40% of a successful large pie than 100% of a failing tiddler”
But at every stage you should try to ensure that you have explored incentives that do not require you to part with your equity in your company.
So you could look at R&D tax credits and grants. Also, further down the line the Patent Box could shave some much needed cash off your corporation tax bill. These Government tax incentives and grants do not require you to give up any of your shares in return for the cash and so could allow you to get further down the line to achieving your milestones with no further decrease in your shareholding.
Often in practice, companies have little alternative but to push through with investment for shares in the company but its always useful to remember that there are other (non-equity) funding avenues available.
I’ve been getting some questions about the new 14.5% R&D tax credit rate announced in the March 2014 Budget Statement and how it works in practise.
So here’s a short video outlining how the effective rate of cash receivable from HMRC increases from 24.75% to 33% on qualifying spend – that’s one third of your R&D expenditure effectively being funded by the Government!
Plus how it could result in approx £8,000 of additional cash in your bank account for each £100,000 of qualifying spend if your SME is loss-making during its R&D phase.
Please leave your comments or feedback below or get in touch.
The quick answer is YES – you can raise funding under both SEIS and EIS but there are some important points to watch including:
- If you wish to raise cash under both schemes, you must issue shares under SEIS before EIS. You can’t raise money and issue shares under EIS and then seek to raise money and issue under shares under SEIS after. It kinda makes sense but one to watch…
- You can only follow on with an issue of shares to investors under EIS once you’ve spent at least 70% of the SEIS cash (no sniggering at the back!). This can raise some practical difficulties as the SEIS investment limit for the company is capped at £150,000 so you don’t want to be back out on the investment trail too soon. It is possible to raise the SEIS and EIS money jointly but to take great care in the issue, timing and other matters related to the shares and investors. *******
- There are some other ‘funnies’ around timing of appointment to Director etc which can differ between the schemes among other things so you need to take care as you don’t want to jeopardise the EIS relief further down the line.
Drop me a line if you need any help either via the contact page or on Twitter (@stevelivingston) or via my specialist tax advisory firm, ip tax solutions.
******* Note that this 70% rule has been abolished for share issues post 5 April 2015
Every UK company is required to file an Annual Return.
This is not to be confused with the annual statutory accounts or annual corporation tax return. The Annual Return is a snapshot of the foundations of the Company at the made up date so it includes details such as:
- Company Name
- Registered Office
- Directors / Company Secretary
- Share Capital
It is due every year (the clue is in its name!) and it is often on an odd date as it runs to the anniversary of the date of incorporation of the company – so unless you incorporated your company on say 31 December then you’ll no doubt have some random odd date as your made up date. You can change it although Companies House do send you a reminder via fairly formal looking letter in advance.
You have 28 days from the made up date to file the return. It is a criminal offence not to file the return on time and, although I’ve never seen formal proceedings initiated where returns are late, the most likely impact is that your company will be unilaterally struck off! So say a month after the due date you mind find that your company is being listed in the Gazette as formal notification that it is due to be struck off and then a couple of months later you may no longer have a company! (Don’t quote me on exact timings but I would suspect this is in the right ball-park.)
You should file your annual return online if possible by visiting the Companies House website and filing it through the portal there. You will need your log in details including authentication code so make sure you have all your paperwork together. It is also cheaper to file it online (£13) compared to filing on paper (£40).
If you are having any problems, I suggest you get your accountants to help you as part of the annual service.
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.
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.
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.