EIS

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:

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

Fast Growth Businesss

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!

Please leave any comments or feedback via Twitter – @iptaxsolutions or use the #fgbpodcast

Subscribe to the Fast Growth Business podcast

You can subscribe to the Fast Growth Business to access future and past shows at iTunes.

Please leave us a rating :)

SEIS / EIS | Crowdfunding | Funding: Modwenna Rees-Mogg

Get Funded! podcast covering SEIS and EIS

Bonus Edition: Here is a re-run of a conversation we had on a related podcast (Fast Growth Business) which we thought listeners of the Get Funded! podcast would also benefit from as it includes discussion around SEIS / EIS.

SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are tax advantaged funding options aimed at enticing angel investors to invest in early stage and fast growth private companies. They provide a great way for you to secure funding for your company.

These tax reliefs apply where you issue shares in your company in exchange for a cash investment from angel investors. The angel investors receive some downside protection from the extra risk they are taking in investing in your company compared to say a more liquid investment such as stock market investments. The downside protection is provided by way of upfront income tax relief on their investment plus a capital gains tax free exit on ultimate sale of the shares (plus there are some other potential tax reliefs). The availability of these tax reliefs are subject to the strict SEIS / EIS tax rules being adhered to by the company for the relevant qualifying period.

You can read more on SEIS / EIS and how it might apply to your company by reading the following posts:

Seed Enterprise Investment Scheme

Enterprise Investment Scheme

In this wide-ranging conversation, Modwenna (Founder of Angel News) discusses her thoughts on crowdfunding, SEIS / EIS plus attracting funding from angel investors. She also gives us a sneak preview of a new online platform that might benefit entrepreneurs and founders who are seeking funding via crowdfunding platforms.

We hope you enjoy it!

It would be great if you could leave us a rating on iTunes – this helps more founders and entrepreneurs find this podcast.

FGB002: Modwenna Rees-Mogg talks raising funding |Crowdfunding | CrowdRating

Fast Growth BusinessWe are delighted to bring you this second episode of the Fast Growth Business podcastthis week we are pleased to welcome as our guest, Modwenna Rees-Mogg, founder of leading private investor news service, Angel News, amongst other entrepreneurial ventures including a new venture aimed at entrepreneurs called CrowdRating.

This podcast is brought to you by ip tax solutions | the innovation tax specialists.

Useful Resource of the Week

Our resource of the week is Rapportive – a useful Gmail extension that brings your social media connections, such as Linkedin, directly into your inbox. It is a good way of keeping in touch with existing contacts and for reaching out to potential new connections…

Guest: Modwenna Rees-Mogg: Angel News | CrowdRating

In this conversation, we cover how Modwenna made the transition from corporate financier to entrepreneur and founded Angel News which brings thought-leadership and insights into the field of private company investment – aimed at both investors and entrepreneurs.

She penned a book on crowdfunding: Crowd Funding: How to Raise Money and Make Money in the Crowd – at a time that was arguably ahead of the curve (much of her forecasts fortunately came true!) – and has she since co-launched a new venture called CrowdRating – the ratings agency for equity crowd funding. This new venture will be of particular interest to founders and entrepreneurs who might be considering raising funding via crowd funding platforms such as Crowdcube.

Modwenna shares her thoughts and views on the private company investing landscape (including SEIS & EIS) plus her view that most founders’ investors might be closer than they think….

You can listen below or access via iTunes.

Seeking your input

Please get in touch with your questions and feedback via Twitter: @iptaxsolutions and/or #fgbpodcast

If you are a UK entrepreneur and would like to share your story, please get in touch as above. Also, if you are involved in advising entrepreneurs on building scalable businesses, we would be delighted to hear from you and to get you involved if you’re the right fit.

Subscribe to receive future episodes

You can subscribe via iTunes or find us on the BusinessN2K.com network.

Listen to this week’s podcast here:

GF012: SEIS / EIS advance assurance tax tips for Film Production companies

In this edition of the Get Funded! podcast we cover some additional tips for film production companies that may be seeking advance assurance from HM Revenue & Customs that they are a qualifying company for the purposes of raising funding under SEIS / EIS.

Further info to enclose for SEIS or EIS film company HMRC advance assurance applications includes:

  • a description of the film company’s role in the production
  • the name of the film
  • how the company secured the production
  • what other parties may be involved e.g. co-producers, SPVs etc.

We hope you find it useful – you can subscribe via iTunes here

GF011 – What is SEIS / EIS HMRC advance assurance and how do I get it?

Get Funded! podcast covering SEIS and EIS

In this episode of the Get Funded! podcast we cover the all important:

HMRC SEIS / EIS advance assurance procedure

This podcast includes the following points with practical advice:

  • Why the advance assurance application is important?
  • How you apply for it?
  • Typical lead times?
  • What could go wrong?
  • Critical info to include?

As discussed in the podcast, the advance assurance procedure is not mandatory although it is highly recommended. This is your opportunity to get HMRC’s approval that your company is a qualifying company for the purposes of raising funding and issuing shares under SEIS / EIS. Most sophisticated investors will insist on evidence of a successful advance assurance application. This is your chance to flush out any uncertainties – don’t miss it! Listen to the podcast via the player below to learn more.

You can find the HMRC SEIS / EIS advance assurance online form mentioned in the podcast here.

Don’t forget that the typical turnaround time is 4-6 weeks for HMRC to respond to your advance assurance application. To avoid unnecessary delays, you would be well advised to get all your shareholder documents (including Articles with any revisions in contemplation of SEIS / EIS investors) finalised prior to filing the application. This is because HMRC will normally want to see the documents in as final form as possible. Otherwise you run the risk that HMRC will issue a ‘partial’ advance assurance in that they will ask for sight of the final version of (say) the Articles if further revisions are envisaged – so you would have to go through the process again. Tune into the podcast via the player below to learn more.

Please subscribe at iTunes to ensure that you can pick up past and future episodes. Also, we’d be thrilled if you could leave a review on iTunes.

If you enjoyed this post, get weekly email updates (they’re free)


GF009 – What does trading mean for SEIS and is my trade new?

Get Funded! podcast covering SEIS and EIS

In this edition of the Get Funded! podcast we cover the thorny subjects of:

  • what “trading” means for the purposes of SEIS and
  • how this interplays with the definition of “Seed” in order to be eligible for Seed Enterprise Investment Relief?

We covered in a previous edition (subscribe via iTunes if you’ve not already!) the fact that you need to be undertaking a qualifying trade within your company if you wish to raise funding under SEIS / EIS but when is this deemed to start and why is it important?

We need to ascertain the starting point for any trade as this has important ramifications for eligibility under SEIS and it also plays into when form SEIS1 can be applied for and / or the timing of the use of the monies raised.

Frustratingly there is no definition of trading aside from the general observation that it would involve undertaking activities with a view to a profit. But what does this mean in practice?

I have discussed this with HMRC Inspectors and they tend to apply the useful anology of a new shop: whilst the new fittings are being installed and the stock is on order you would expect the sign on the front to say ‘closed’ (it is not yet trading). Once the shop is ready and the sign is turned to ‘open’ then trading has commenced.

So the question for your business is whether you are in a position to accept paying customers? This can get a little hazy for software startups, for example, applying lean startup principles and beta launches etc…

For SEIS purposes, a company must be carrying out a new qualifying trade. For these purposes the trade must be less than two years old. So you must apply the above principles to determine when your trade started. If you are using a company that was incorporated more than two years ago and there has been activity in the company within this timeframe that might point to a trade then this could cause problems. You would be well advised to seek advance assurance from HMRC and to explain the position to ensure that there are no problems. Likewise, if you are acquiring the trade from a third party company then you would need to ensure that it satisfied the two year rule.

When seeking the tax certificates for the investors this can be carried out after 70% of the monies raised has been spent or four months after the trade commenced – whichever is earlier. Again the above principles come into play.

GF008 – Does your company qualify for SEIS / EIS?

Get Funded! podcast covering SEIS and EIS

Here in this edition of the Get Funded! podcast we cover the essential requirements related to your company and its eligibility for SEIS / EIS funding.

As you might expect for such a generous tax relief, it is not available to all companies – instead it is targeted at small – medium sized companies with the capacity for growth (along with a healthy dose of risk!).

The key company requirements for SEIS / EIS are as follows:

        • The company must be unquoted i.e. it must not be quoted on a recognised stock exchange. Note that the Alternative Investment Market (AIM) is okay for SEIS / EIS purposes as it is not counted by HMRC as a ‘recognised stock exchange’
        • The company must have a UK permanent establishment. Most companies will be incorporated in the UK so this isn’t normally an issue but this demonstrates that the rules are more flexible than some might appreciate – it could be an overseas company with a UK branch / permanent establishment and still qualify
        • For SEIS, the company must have gross assets of no more than £200,000 at the time of the issue of the shares – here we are concerned with total assets on the balance sheet only NOT net assets (ie after deducting liabilities). Where there are subsidiaries, these must be totalled up.
        • For EIS, the gross assets limit is £15m immediately before and £16m after the use.
        • For SEIS, the company must have fewer than 25 employees immediately before the relevant share issue
        • For EIS, the employee limit is 249.
        • The company must be carrying out a qualifying trade – the definition of what constitutes a ‘qualifying trade’ for SEIS / EIS purposes is deduced in reverse by reference to the ‘Excluded activities’ list – so if you’re not on it you should be okay! We’ll cover this in more detail in a future podcast as there are some potential traps here especially for software companies…
        • For SEIS, the company must not have received EIS or VCT monies.

Get email updates (they’re free!).



Claim EIS income tax relief if you want a CGT free disposal

Should have claimed EIS income tax reliefThere’s been a recent sorry tale of an EIS investor who invested £50k for shares in a qualifying company under EIS. All seemingly went well and he sold his shares for – what he thought would be – a CGT free disposal.

But there was a problem…

He had failed to make a claim for income tax relief on his investment which is a requirement of the EIS relief – his reasoning was that he had little, if any, taxable income in the relevant period. He was denied the opportunity to file a late claim for income tax relief so his case was dismissed – with a full CGT liability…

So the moral of the story for EIS investors is to make a claim for income tax relief on investments even if the income tax saving might appear pitiful – because the CGT saving might not be ;)

GF007: What percentage share capital can I own under SEIS / EIS?

Get Funded! podcast covering SEIS and EIS

This is a thorny subject that comes up time and time again:

How much of the share capital can I or my investors own under SEIS / EIS?

In this seventh episode of the Get Funded! podcast we cover the (dreaded) “substantial interest” test that basically says that you can’t hold more than 30% of the issued share capital and qualify for SEIS / EIS.

I say “dreaded” because it is not just you or your investor that you need to consider but also any “associates” too. “Associates” include spouses plus parents, children, grand-parents etc (basically blood relations up and down). Brothers and sisters are not counted as “associates”.

Many startup companies get tripped up by this rule so watch out for it!

This episode was brought to you by ip tax solutions – specialists in R&D tax credits