For generations, the UK has justifiably been recognised as a hothouse for technological innovation and a big part of that is down to firms' investment in research and development. Successive governments seek to demonstrate their commitment to continuing this tradition, and one initiative that is proven to work is a tax credits incentive for R&D, that can result in either a reduction of tax or a cash repayment, of up to 33% of expenditure on eligible activities.
Unfortunately the current scheme is a complex affair with hundreds of pages of legislation. Many accountants, in-house and external, if not sufficiently experienced in R&D claims, may find it difficult to identify whether their clients have a justifiable claim or know how much can be claimed. And they may not have the confidence or wherewithal to defend it successfully if the claim is challenged by HMRC. It comes as no surprise then that many businesses that have substantial research and development arms now look to specialist advisory firms for advice they can rely on.
Here's the lowdown on R&D tax credits…
The amount that can be claimed back depends on the size of a business and whether it is profitable or loss making. Let's assume you operate an SME. Currently, if you're making a profit, you can claim a super deduction from your taxable income of 230% in qualifying R&D expenditure, while if you're currently running a loss-making enterprise you can then surrender that enhanced deduction for tax credits at a rate of 14.5% for losses, equating to about 33 pence in the pound.
A typical claimant can receive upwards of £46,000 every year, and you normally go back two years. So far, straightforward enough. Yet many businesses that are eligible – most, in fact – are not submitting claims. Why not?
HMRC guidance stipulates that to qualify for tax relief, a project "must seek to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty".
While this makes it sound as though your business needs to be stepping into unknown territory, boldly going forth like the Starship Enterprise, in reality most R&D happens as part of normal product development. And while it's nice to be the only one in the industry working on something, many companies in the same industry can be working on the same thing simultaneously and it's still R&D for them. So many companies are left wondering if their advances and uncertainties apply to the industry as a whole, and therefore if the work qualifies.
If your business is considering an R&D project, it makes sense to begin with tax relief at the front of your mind, and potentially structuring the project to maximise this advantage. From an accountant's perspective, they typically ask whether the project is "highly innovative" (which it may be commercially but not necessarily technologically, or vice versa), whether it is pushing the boundaries of science or other unhelpful questions, whereas the actual criteria are much broader than that.
There is another, even greyer area, which may be the biggest reason so many businesses fail to claim for relief. That is that eligible R&D-associated costs can be broad, often stretching across a company's entire operations, and certainly not restricted to just the R&D department.
Let's say that your product development has 20 software developers or engineers working on a project. Allowable costs will include the relevant part of their salaries of course, for those 20 staff members – something that is often not easy to determine, as well as consumables such as materials used in testing. There will also be a proportion of utilities that can be claimed. But what about the time spent by senior management in coordinating the project?
What about the product managers or implementation team who liaise with live customers to test the product in a real-world environment? What about the hours spent tallying up the various costs involved with the project or recruiting new engineers? These indirect business costs can in certain circumstances all legitimately be claimed for, and could add up to thousands proportionally.
That's why if your business has a significant project on the horizon, be it a submersible smartwatch or anything else, it's a good move to consult a specialist in claiming tax relief for R&D before moving any further forward.
Blog © 2015 Innovation Plus
In Terry Pratchett's Wintersmith, one of the characters "read Principles of Accounting all morning, but just to make it interesting, he put lots of dragons in it". You might feel the same when trying to decide which invoicing software to choose for your business. Read this simple five step guide and you'll hopefully have an answer!
You can only solve a problem once you know what's causing it. What exactly is costing your business time and money? Late customer payments? Cash flow problems? Endless meetings with your accountant? Unclaimed tax and expenses?
You don't need a comprehensive list of every minute and penny spent. But a needs analysis will give you a fair idea of where most of your resources are going when it comes to business finances. You can then decide which solution will solve it.
Invoicing software allows you to create, send and manage invoices. This may well be what you need if you're struggling with overdue payments, a lack of liquidity or keeping track of what money is where.
Accounting software provides a more comprehensive financial overview of how your business is performing. It automatically logs the flow of money in and out of your business. It provides reports for anything from VAT through to expenses and mileage. It acts like a virtual accountant.
There's an overwhelming amount of providers out there. So make sure you look beyond any marketing and fancy branding, and decide what's best for you and your business. The free offerings have their uses, but also limitations. They might have their logo on your invoices, or restrict you to a limited number of users or invoices per month. Some lack key features such as recurring payment tools.
Paid packages start from as little as few pounds a month, so if you're serious about managing your business finances, you might want to explore this option. You'll certainly notice the difference.
You can try most invoicing software options on a free trial. This is great way to test out the functionality of a product and see which one you like best. A deciding factor could well be ease of use.
Many industries make it difficult for you to change providers (think energy companies or phone networks). Even if there is a better offer elsewhere, it is often expensive or complicated to change. But this isn't the case with invoicing software. If you start with one solution and then discover a better offer elsewhere, it's easy to make the switch. You can migrate all your data with a few simple clicks, and pick up where you left off straightaway. This way you can stay with a service for the right reasons.
Hopefully these tips make it a little easier to decide what invoicing software to go for – even if they don't mention any dragons.
Copyright © 2015 John Hills from Zervant.com.
Less than four months since his last Budget statement, the chancellor, George Osborne, delivered a second 2015 Budget to Parliament today. The difference this time around is that the chancellor has a majority (albeit slim) Government behind him for the first time in almost 20 years. This gave him the opportunity to deliver on some of the Tory party manifesto promises.
In its manifesto, the Tory party had pledged to hold VAT, National Insurance contributions and Income tax at their current level. But this didn't go far enough for some business leaders. Stephen Herring, head of taxation at the Institute of Directors, said “As the economy continues to recover, both business and individual taxpayers will rightly expect more wide-ranging tax reforms and simplification than the previous Government was able or willing to undertake.
"Businesses, especially SMEs, are concerned about high taxes on employment, commercial property occupation and transactions as well as being convinced that Government ought to try much harder to deliver authentic, far reaching tax simplification."
Speculation ahead of the Budget predicted a slowdown in the pace of cuts, reforms in Sunday Trading rules and an increase in the amount employees could earn before they start paying tax. And, as the first Tory Budget for 19 years, it was generally predicted that there would be a few bold moves.
After a rowdy prime minister's Question Time, the chancellor took a sip of water, cleared his throat and waded in. He announced:
The initial response to the chancellor's Budget was mixed. However, he did manage to pull a rabbit from the red Budget box in the form of the Living Wage, which has pleased many.
Vicki Hughes, founder of Fugu PR and member of the Brighton Living Wage Campaign said: "A living wage should be an essential part of any responsible business and it's something that many SMEs, including my business Fugu, have naturally built into our business models since day one. It’s not just desirable that people are paid enough to live, but should be a number one priority for anyone running a business."
However, others were less enthusiastic about the announcements. Darren Fell, ceo of Crunch Accounting, said: “Overall we thought this was a hit-and-miss Budget for freelancers and micro-business owners. The continuing reductions in corporate and personal taxes can only be seen as a good thing, but the changes in dividend taxation and the new restrictions to the Employment Allowance will negatively impact one-person limited companies. George Osborne is essentially giving with one hand and taking away with the other."
Elaine Clark of Cheapaccounting.co.uk agreed: "I understand that the Government wants to clamp down on artificial or disguised employment but they need to make sure that they do not throw the baby out with the bath water.
"Where a director is the sole employee of a limited company, they will no longer be able to claim the Employment Allowance. It seems that with this, and the reform to dividends, the hard working single director limited company is going to be worse off and that cannot be a good thing."
Brian Palmer, AAT Tax Policy Adviser, said: "Dividend tax reform has been announced. I believe it is an attempt to level the playing field between ordinary employees, and those who take minimal salary, but get dividends. While I have some sympathy in what’s being attempted, I am concerned this measure might stifle entrepreneurship. Another measure which I worry may stall entrepreneurship is that one person companies will no longer be able to claim Employment Allowance."
Commenting on the reforms to Sunday trading, retail expert and high street campaigner Clare Rayner said, "Footfall stats prove the traditional high street opening hours are no good for businesses, and being open early evening and all weekend is in their interest.
"Some smaller shops do open on Sunday, alongside their larger chain-store neighbours, but if the town centres were, in general, seen as more accessible, open for business and therefore more convenient for shoppers it could boost footfall in towns. Those who want to will be able to linger longer without feeling pressured to get their shopping done. And that could be a boost for town centres in general and for all those who trade there."
The Chancellor of the Exchequer, George Osborne, announced the Summer Budget on Wednesday 8 July.
It was the first majority Tory Budget for 19 years and it gave the Chancellor a chance to deliver on some of the Tory party's manifesto promises.
Throughout the week we will be covering the key updates affecting small businesses:
[Updated: 9 July 2015]
Check this page for Summer Budget updates and links to news and comments:
As the Government's workplace pension scheme enters its second phase and turns towards firms with 30 or fewer employees, how can employers cut through the pensions jargon to find the right automatic enrolment platform?
Already, five million employees working for large and medium-sized firms have benefitted from this new drive towards filling the £28bn pensions black hole, but what follows over the next two years will be more complex, as an estimated 1.3m small businesses begin to offer retirement-saving schemes.
According to The Pensions Regulator, 50% of small firms still don't understand the implications of the new legislation. Small-business owners need to generate new business, understand marketing, finances, supplier issues and staff issues, but most have much less enthusiasm (or time) for understanding the ins and outs of pension schemes.
According to advice from The Pensions Regulator, businesses should allow 12 months to get ready for the workplace pension. Recently published research suggests it takes 103 days to set up a pension scheme, which equates to £15.4bn in lost hours and it would take 450,000 working years to comply. It simply doesn't have to take this long. There are platforms that can do it much quicker.
So what are the most important things small businesses need to consider when researching a pensions provider or looking to change their existing arrangements? Cost and time are the essence.
Over the next few months, the number of businesses enrolling in a pensions scheme is going to increase dramatically from 10,000 per quarter to about 200,000. This will have a potential time implication, so firms that insist on face-to-face meetings and paper compliance will begin to take much longer. Employers who want to find out their staging date should use this calculator.
From June 2015, employers with fewer than 30 staff will begin to be affected by new workplace pension legislation (AKA auto enrolment). It can be difficult to understand your obligations as an employer, but here are five quick tips to help you navigate the process.
Prepare for auto enrolment well ahead of your staging date. Once you receive your letter from The Pensions Regulator, follow the nomination instructions as soon as possible to ensure all further correspondence is being sent to the right person in your business (or those to whom you outsource). This would also be a good time to research the best pension scheme for your company. NEST is a pension scheme set up by the government that any employer can use.
Not only will your employees be out of pocket on a pension scheme designed for everyone but there are heavy fines handed out from The Pension Regulator the longer you are non-compliant.
Employers must communicate how the new workplace pension scheme will work to their employers in a certain way and at certain times. The Pensions Regulator has guidelines available.
Contributions to workplace pensions are based on each company's payroll every month. To manage auto enrolment correctly, contributions must match the payroll information and be detailed on payslips issued to employees. It would be a great injustice if you thought you had understood and set up the pension correctly yet the data from payroll resulted in incorrect auto enrolment.
Employees need to be assessed every month for auto Enrolment, as they may become eligible and must be opted into the chosen pension scheme. Furthermore you'll need to process opt-outs, opt-ins and make employers aware if there are changes to their employees pay or contribution levels.
Copyright © 2105 Beatrice Drewitt, auto enrolment specialist at Quartz Payroll and Auto Enrolment.