Could your business benefit from tax-efficient schemes?
The UK’s tax rules are complex – some would say impossibly so – so it’s no real surprise that many of the valuable tax reliefs available to businesses are often overlooked. The Government have created some very useful tax-saving schemes which they want growing businesses to use. We help our clients to maximise their use of those schemes to minimise what they pay to HMRC. Here are details of just three of the schemes which can have a significant impact on the amount of tax paid. There are others. Could your business benefit from saving tax? Contact Morgan Cameron to find out.
Want to encourage your employees to buy in to the overall growth of the business, reward key people without paying them cash and incentivise a potential employee? Share options are a very tax-efficient way of doing just that. It is important to think about share options early when a company may still not be worth a great deal or in preparation for an exit strategy in a few years. Tax on the increase in share values can be as low as 10% and with no NI compares very favourably to income tax and national insurance on bonuses.
However it is crucial to do it properly. As an area of tax legislation often used by artificial tax avoidance schemes there are plenty of “elephant traps” to fall into if you don’t negotiate the maze of tax rules successfully.
The Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme provides tax incentives in the form of a variety of income tax, inheritance tax and capital gains tax deferral reliefs to investors who invest in smaller, unquoted, trading companies.
- Investing in an EIS company can result in an immediate income tax refund of up to 30% of the amount invested
- Shares in qualifying EIS companies are 100% exempt from inheritance tax after two years ownership making them a useful investment for IHT planning
- If someone had sold other assets and has capital gains tax to pay this can be deferred by reinvesting the gain into qualifying EIS shares
The combination of tax reliefs can give up to 98% relief in some cases!
The Finance Act 2012 introduced the Seed Enterprise Investment Scheme (SEIS) as an EIS for start-ups. This is even more generous but has much smaller limits.
NB: the individual, shares and the company all have to qualify for EIS over a period of three years so knowing the rules and making sure everyone complies will avoid withdrawal of any tax reliefs
R&D Tax Credits
Despite the large scope of the Research and Development Tax Credits Scheme, there are still many people who don’t know about R&D Tax Credits, or have been misinformed about them.
The R&D Tax Credits Scheme, is a tax break that the government has had in place for over 10 years (though the rules are constantly evolving). The objective is to use tax incentives to encourage technical firms to invest in developing their own innovative products, and make the UK more competitive globally.
R&D Tax Credits work by reducing your taxable profit (perhaps all the way into a tax loss) and thereby reducing your Corporation Tax bill. However, even if you don’t owe any Corporation Tax (or don’t owe much), the scheme can still provide you with cash in exchange for “surrendering” some of the tax loss that has been created. In other words, R&D Tax Credits can help whether you’re currently profitable or not.
We have successfully guided a number of our clients to claim credits in a wide variety of computer software developments and biomedical applications.
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