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R & D boost for smaller businesses

Wednesday, November 4th, 2015

In a major boost for pioneering small businesses, the Financial Secretary to the Treasury, David Gauke, recently launched a new plan outlining how government will make it easier for small businesses investing in research and development to claim tax relief.

The two-year plan, which is a response to an HMRC consultation, aims to increase take-up of research and development (R&D) tax relief through raising awareness of the relief amongst small businesses and making it easier for them to apply.

The tax relief, which encourages companies to invest in costly new product development, helps companies reduce the amount of corporation tax they pay on profits by offsetting them against any investment in research and development. Latest statistics for 2013-14 show more than 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but the government wants to go further.

Financial Secretary to the Treasury David Gauke said:

R&D is crucial for the long-term growth of the UK economy. Over 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but we need to go further to support pioneering small businesses.

That’s why we’ve published a document setting out our plans to increase awareness and make it easier for people to apply.

The plan, ‘Making R&D Easier: HMRC’s plan for small business R&D tax relief’, was published 28 October 2015 and sets out that:

  • From November, small companies – with a turnover under £2 million and fewer than 50 employees – will be able to seek advance assurance on R&D tax relief. This will give them greater certainty and enable them to plan their finances effectively.
  • HMRC will explore ways to improve its communication around R&D tax relief, including looking at ways to use data and work with other government agencies to identify companies that have carried out R&D but have not claimed relief.
  • Interactive guidance will be developed with stakeholder involvement

HMRC evaluation shows that each £1 of tax foregone by R&D tax relief stimulates between £1.53 and £2.35 of additional R&D investment. SME R&D relief works by way of super deduction, allowing companies to reduce profits liable to corporation tax by 230 per cent of their qualifying R&D expenditure. In 2013-14, businesses received £1.75 billion in R&D tax relief, an increase of almost £750 million since 2009-10.

Pension changes

Thursday, October 29th, 2015

 HMRC have recently published an update to issues that affect pension scheme administrators and individuals who contribute to pension funds. Highlights of some of the issues raised are reproduced below:

Annual allowance charges for tax year 2014-15

Administrators are reminded that it is really important that scheme members who have exceeded the pension schemes annual allowance of £40,000 for 2014-15 declare this on their Self-Assessment tax return. The deadline for submitting the return is 31 January 2016 although those scheme members who want to submit a paper Self-Assessment tax return must do so by 31 October 2015.

Those members who have exceeded the 2014-15 annual allowance and do not have sufficient unused annual allowance to carry forward from previous tax years will have to pay a tax charge.

Tapered annual allowance

Scheme administrators and contributors are also reminded that from 6 April 2016, as part of the changes for the tapered annual allowance, all pension input periods must be aligned with the tax year, even if the member is not affected by the taper.

This measure will restrict pensions tax relief by introducing a tapered reduction in the amount of the annual allowance for individuals with income (including the value of any pension contributions) of over £150,000 and who have an income (excluding pension contributions) in excess of £110,000.

Taxation of lump sum death benefits PAYE

Death benefits paid to individuals will change to the recipient’s marginal rate of income tax from 6 April 2016.

Normal PAYE rules will apply to these payments.

Pension Flexibility – transitional period

The special temporary rules have allowed individuals to take their pension commencement lump sum tax-free before 6 April 2015 and the associated taxable pension before 6 October 2015, outside of the usual six-month time-limit.

This allowed individuals to delay accessing their pension until the provisions of the Taxation of Pensions Act 2014 took effect from 6 April 2015, providing them with more choice.

Many will have accessed their pension shortly after 6 April 2015 but please note that the extended period for individuals to access their pension after taking their pension commencement lump sum under these temporary rules expired on 6 October 2015.

Tax gap narrows

Tuesday, October 27th, 2015

The tax gap for 2013-14 was 6.4% of tax due, continuing a long-term downward trend.

The tax gap, which is the difference between the amount of tax due and the amount collected, has fallen from 8.4% in 2005-06. This reduction in the percentage tax gap since 2005-06 represents an additional £57 billion in cumulative tax collected over the eight-year period.

The largest reduction is in the Corporation Tax gap which has halved since 2005-06, from 14% to 7% of relevant tax liabilities. There has been a sustained downward trend for both large and small businesses, with the overall reduction driven mainly by large businesses.

David Gauke, Financial Secretary to the Treasury, said:

The UK has one of the lowest tax gaps in the world, and this Government is determined to continue fighting evasion and avoidance wherever it occurs.

If the tax gap percentage had stayed at its 2009 to 2010 value of 7.3%, £14.5 billion less tax would have been collected.

There is understandable anger when individuals or companies are perceived not to be contributing their fair share, but we can reassure the public that the proportion going unpaid is low and this government is dedicated to bringing it down further.

The government invested almost £1 billion over the last Spending Review period to transform HMRC’s approach to compliance and close the tax gap. This investment contributed to the delivery of more than £100 billion in additional compliance revenues over the Spending Review period to the end of 2015-16.

In 2013-14, HMRC brought in £505.8 billion in tax revenue for public services and secured £23.9 billion of compliance yield – money that would otherwise have been lost to the Exchequer. HMRC has built on this and last year (2014-15) brought in a record £517.7 billion in tax revenue and secured £26.6 billion in compliance yield.

HMRC chases down tax fraudsters

Friday, October 23rd, 2015

HMRC recently announced that they have brought in an additional £109m in tax revenue in the last six months by pursuing claims against taxpayers who have not declared all their income for tax purposes. The specialist task forces employed to collect this tax are becoming increasingly effective at identifying and tracking down individuals and businesses who have not declared their true income and gains.

Between April and October 2015, HMRC launched 27 new taskforces targeting sectors that are at the highest risk of tax fraud, including Income Tax Self Assessment (ITSA) Repayments, Retail, Hidden Wealth and Grocery sectors, with one taskforce alone generating 22 arrests.

Taskforces were first launched in spring 2011 as part of HMRC’s compliance strategy to tackle tax evasion and fraud. Over 100 taskforces have been launched since then yielding more than £404 million, protecting this money for public services.

Speaking at the UK Tax Investigation Conference today, Jennie Granger, Director General for Enforcement and Compliance at HMRC, said:

“The message is clear if you try to cheat on your tax we are going to catch you – it’s only fair that we all pay what we should to fund public services. We have increasing amounts of intelligence, and are using state of the art digital tools to help us to identify and target high risk areas. This yield of £109 million – almost double the figure for the same period in 2014 – shows that our strategy is working.”

Taskforces bring together various HMRC compliance and enforcement teams for intensive bursts of activity targeted at specific sectors and locations where there is evidence of high risk of tax evasion and fraud. The teams visit traders to examine their records and carry out other investigations.

HMRC are also working with others to unmask the hidden economy including:

  • Trading Standards, the Vehicle and Operator Services Agency and the Department for Work and Pensions to identify uninsured drivers and benefit cheats
  • local authorities and Home Office immigration enforcement to investigate exploitation of migrant workers and multiple occupation of houses
  • London boroughs and police to tackle rogue landlords charging cash-in-hand rents and exploiting vulnerable people living in sub-standard or unsafe homes

Legislation introduced in September 2013 means HMRC can use data from credit and debit card companies on sales made by retailers, to cross check against their VAT registrations and business income declared on tax returns.

Directors responsibilities

Wednesday, October 21st, 2015

We are often asked to explain the role a director is required to undertake for an incorporated business. It is wise to take this question seriously as these responsibilities are written into company law – break them at your peril.

The government website lists these duties as follows.

As a director of a limited company, you must:

  • try to make the company a success, using your skills, experience and judgment
  • follow the company’s rules, shown in its articles of association
  • make decisions for the benefit of the company, not yourself
  • tell other shareholders if you might personally benefit from a transaction the company makes
  • keep company records and report changes to Companies House and HM Revenue and Customs (HMRC)
  • make sure the company’s accounts are a ‘true and fair view’ of the business’ finances
  • file a Company Tax Return and pay Corporation Tax
  • register for Self Assessment and send a personal Self Assessment tax return every year – unless it’s a non-profit organisation (e.g. a charity) and you didn’t get any pay or benefits, like a company car

You can hire other people to manage some of these things day-to-day (e.g. an accountant) but you’re still legally responsible for your company’s records, accounts and performance.

You may be personally liable for your company’s business liabilities and be fined, prosecuted or disqualified as a company director if you don’t follow the rules.

Taking on an appointment as a director should not be undertaken lightly. Readers who have been asked to act and are still unsure if they should accept should take professional advice.

HMRC multi-year funding for voluntary sector

Thursday, October 15th, 2015

HMRC are inviting bids from interested charities and will allocate a guaranteed £1.5m per year over the next 3 years to the voluntary and community sector (VCS) to support taxpayers who need extra help understanding and complying with their tax obligations and claiming their entitlements, including those who are currently digitally excluded.

 They are looking for VCS organisations to help taxpayers form or rebuild a relationship with HMRC that enables them to engage directly with HMRC in the future.

 Bids should include one or more of the following activities:

  • providing advice and support for HMRC’s customers who need extra help and cannot afford to pay for it
  • assisting customers who are digitally excluded, to build their confidence and capability to use HMRC’s online services for themselves
  • providing specialist advice and taking referrals by telephone or email from HMRC’s extra help service
  • assisting customers who need independent advice and support with more complex tax issues, for example complicated PAYE issues, or claims for Special Relief and appeals

Interested organisation would require the infrastructure and capability to handle in the region of 700 referrals per year, and would be responsible for bringing individual cases to conclusion.

We invite bids for funding of between £10,000 and £450,000 per annum, with a maximum threshold set at 50% of your organisation’s turnover (last audited accounts).

We will only accept one bid per organisation. To qualify for a bid the organisation must comply with all of the following rules:

You will need to confirm that you satisfy all of the following criteria to be eligible to apply for grant funding from HMRC.

  1. Your organisation must be one of the following:

    • registered charity
    • voluntary and community sector organisation
    • social enterprise
    • mutual
    • co-operative
  2. Your organisation must have 3 years of financial history in place.
  3. Your organisation must have a turnover of no less than £40,000 per annum.
  4. No directors within your organisation to have been disqualified in the last 5 years.
  5. No director, trustee, treasurer or anyone in a position of financial responsibility to have had a relevant conviction, such as for fraud, within the last 3 years.
  6. You must have sound and comprehensive financial systems and processes that enable you to track the amount of funding spent throughout the year, and demonstrate that you have allocated the funding to the specific activity detailed in your bid.
  7. You are able to identify customers who have HMRC-related issues and be competent to help them with one or more HMRC services, for example:
  8. Tax (PAYE and Self Assessment)
  9. Working Tax Credits
  10. Child Tax Credits
  11. Child Benefit
  12. You must have in place an infrastructure for monitoring and evaluating that is capable of reporting agreed outcomes; i.e. the impact on your clients and that your outcomes represent value for money.
  13. No aspect of the activity funded by this grant may be party-political in intention, use or presentation.
  14. The grant cannot be used to support or promote religious activity.

Any bids that progress through the evaluation process will be subject to verification of the eligibility criteria along with additional financial /operating information as part of our due diligence process.

The timeline for the funding round is as follows:

  • 8 November 2015 – Deadline for receipt of completed applications
  • within 3 working days – we will acknowledge receipt of your application
  • from 14 December 2015 – notification sent to successful applicants
  • 1 April 2016 – grant agreements in place and new funding begins


Charities that are interested should apply to HMRC VCS Stakeholder Management Team –

Early bird filing

Tuesday, October 13th, 2015

Why would you want to file your tax return early?

The end of this month, for example, is the deadline for filing a paper version of the 2014-15 self assessment tax returns, and if you file online, the deadline is 31 January 2016.

A significant number of taxpayers still file after the deadlines and seem happy to pay the late filing penalties and interest on unpaid tax if any falls due. A remarkably larger number seem content to wait and file at the last minute. So what are the advantages of filing earlier? Two spring to mind:

  1. If any tax is due you will have more time to accumulate funds to pay it, and
  1. If you have overpaid tax you will get the money back sooner…

If you have a professional advisor there are additional benefits. It is possible to process your tax information and review your tax position prior to filing. This will ensure that no planning opportunities have been missed and any remedial actions can be taken before the return is sent to HMRC.

There are not many strategies that can be legitimately used in arrears, but there are a few. For example, in certain circumstances it is possible to pay charitable donations after 5 April 2015 and carry back the higher rate tax relief to 2014-15. If you want to make the most of the advice that we can give, give us time to research and plan. Bringing in your tax records in the last weeks of January to file the previous year’s tax return is counterproductive. The early bird really does get the benefit of reasoned tax advice and you will know, in advance, what your tax payments are likely to be for the next year.

Creditors have their day in court

Friday, October 9th, 2015

In a recent insolvency investigation Richard Price and Timothy Porter, both directors of Recruit Investments Limited, which headed up a group of businesses specialising in labour recruitment, have been banned from being company directors for 6 years and 5 years respectively for transferring company assets for no consideration, including Arabian horses and money to one of the directors and parties unconnected with the company.

The insolvency Service investigation, which led to the disqualifications, uncovered that Mr Price and Mr Porter:

  • transferred company assets with a value of £242,640, which included a number of Arabian horses, to parties unconnected with the company for no consideration in return
  • paid £165,541 of company money to Mr Price and/or unconnected parties without due regard to the interests of the company’s creditors, who were largely left unpaid. The funds were withdrawn and the assets transferred at a time when Mr Price and Mr Porter were, or ought to have been, aware that the company was insolvent and unable to pay its debts as and when they fell due.

Recruit entered into liquidation on 12 November 2013 with a deficiency of £2,656,328. Mr Price and Mr Porter gave undertakings to the Secretary of State for Business, Innovation and Skills on 19 August 2015 and 08 August 2015 respectively which prevents them from being directly or indirectly becoming involved in the promotion formation or management of a company until 22 September 2021 and 31 August 2020 respectively.

Jane Knight, Senior Investigator, Insolvent Investigations – Midlands and West said:

The Insolvency Service will rigorously pursue company directors who seek to benefit themselves ahead of their creditors by extracting company funds when others are not being paid.

Limited liability protection is only available to those who comply with their obligations as company directors. If those obligations are ignored, that protection will be withdrawn.


Safeguarding your business ideas

Tuesday, October 6th, 2015

You will have automatic copyright protection for writing and literary works, art, photography, films, TV, music, web content and sound recordings

‘Design right’ automatically protects your design for 10 years after it was first sold or 15 years after it was created – whichever is earliest. You can use it to stop someone copying your design.

Design right only applies to the shape and configuration (how different parts of a design are arranged together) of objects. You can also register your design for better protection provided it meets the eligibility criteria. You must register a design to protect 2-dimensional designs such as graphics, textiles and wallpaper.

You’ll need proof of when you created a design if you want to claim design right. This could be copies of your design drawings or photos:

  • kept with a bank or solicitor
  • that you’ve sent to yourself by registered, dated post and kept unopened

Protection you have to apply for includes:

  1. Trade Marks: for example product names, logos and jingles.
  2. Registered designs: covers the appearance of a product including shape, packaging, patterns, colours and decoration.
  3. Patents: inventions and products including, machines, machine parts, tools and medicines.

The time it takes to register these various protections varies from one month to around five years (in the case of patent applications).

You could register more than one type of protection. For example: register your name and logo as a trade mark; a product’s unique shape as a registered design; patent a new working part; or use copyright to protect your drawings.

Salary v dividends conundrum

Thursday, October 1st, 2015

In the last two editions of this newsletter we have outlined the impact of the changes to the taxation of dividends that will commence 6 April 2016.

This month we want to continue to look at this major change as it affects the shareholder directors of private limited companies.

For 2015-16 any dividends drawn by shareholders that form part of their income taxed at the standard rate, will attract no personal tax on amounts taken. If the dividends form part of their income taxed at 40% or 45%, then the additional personal tax due is calculated as 32.5% or 37.5% respectively – of the gross dividend received – less the present 10% tax credit.

As previously discussed, from 6 April 2016, the way dividends are being taxed will change. The 10% tax credit is being abolished and each individual will have available a flat rate dividend allowance of £5,000. Any dividends received by an individual in excess of £5,000 will be taxed as follows:

  • 7.5% if your dividend income is within the standard rate (20%) band
  • 32.5% if your dividend income is within the higher rate (40%) band, and
  • 38.1% if your dividend income is within the additional rate (45%) band

A director shareholder who presently receives a £27,000 net dividend as part of his remuneration package, and all of this income falls to be part of their standard rate band, then no additional tax is payable. With no change in strategy, for 2016-17 the same dividend will create an extra personal tax liability of £1,650.

 This amount will usually form part of the director’s Self Assessment underpayment for 2016-17 and be due for payment 31 January 2018. On the same date the director will be required to make a payment on account for 2017-18; accordingly, the extra tax of £1,650 coverts into tax payable of £2,475 on 31 January 2018 (£1,650 plus 50% of this amount as payment on account for 2017-18), with a further 50% or £825 payable as a second payment on account 31 July 2018.

 Should you compensate for this tax increase by increasing your salary? The answer would generally be no, as that would mean 12% employees’ NICs and 13.8% employers’ NICs. It may be possible to offset any additional employers’ NICs due by claiming the £2,000 Employment Allowance (£3000 from April 2016, but beware new restrictions from this date for “one-man” companies).

Unfortunately, in most, if not all cases, where dividend income is a significant part of your remuneration package, this change in legislation is likely to mean that you will pay more personal tax from April next year.

 Interestingly, a higher rate tax payer receiving the same £27,000 cash dividend will only be £400 worse off.

 It should also be noted that the £5,000 allowance is not an exception but a nil rate tax band. The full dividends still count as income e.g. for calculating the effect on personal tax allowances.

 There are limited planning options, including changing the scale of dividends taken before 6 April 2016. Business owners need to plan for these tax increases and we recommend that you seek professional advice as soon as possible.

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