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Is your business missing out on R&D tax credits?

May 06, 2015 by Tax Donut contributor

Is your business missing out on R&D tax credits?{{}}From the 1 April 2015, businesses have been able to claim £130 for every £100 spent on qualifying R&D, following an increase from 125% to 130%.

HMRC introduced the R&D Tax Credit Scheme in 2000 as an incentive designed to make the UK an attractive place for innovative companies to operate. The schemes that are currently available enable businesses to claim substantial tax relief on the money they spend on research and development that qualifies under the relevant scheme.

It is usually the size of the business that determines which scheme they are eligible for. The Small or Medium-sized Enterprise (SME) Scheme offers very generous incentives for both tax-paying and loss-making SMEs. For a profitable company that pays tax, the reduction in tax payable is worth 26% of the qualifying spend. For a loss-making company there is the potential to surrender the losses for a cash payment from HMRC, which could be worth up to 33.35% of the qualifying spend.

Companies that are unable to claim under the SME regime may be able to claim under one of two large company regimes: The Large Company Scheme or the R&D expenditure credit (RDEC) scheme.

Despite the fact that the scheme has been available to SMEs for 15 years, many companies are still either under-claiming or not claiming at all.

A recent KPMG Enterprise survey of SMEs found only 5% had ever claimed R&D tax relief. Data released from Baker Tilly last year revealed that only 15% of the 750 SMEs surveyed were aware of R&D tax credits. HMRC estimates suggest that fewer than 45% of the tech community claim all of the relief on offer, with many not claiming at all. While it's impossible to say what the exact figures are for SMEs across the country, it's highly likely that a large proportion of small and medium-sized businesses are missing out. With such generous benefits on offer, businesses should be taking full advantage of the R&D tax reliefs available to them.

Copyright © 2105 John Moore, technology tax specialist at Kingly Brookes LLP and member of the HMRC R&D consultative committee.

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Should Labour change 'non-dom' tax rules if elected?

April 27, 2015 by Mark Williams

Ed Milliband{{}}"Ed Miliband's non-dom crackdown is 'cataclysmic'" warned a recent headline in The Telegraph, following the Labour leader's announcement of his plan to abolish non-domiciled tax status should he become Prime Minister. As Labour pointed out on Twitter, William Pitt the Younger created non-dom tax status in 1799 during the Napoleonic Wars (the year income tax was introduced).

Currently, wealthy people living in the UK but "domiciled" (ie having their permanent home) elsewhere can apply for non-dom status to avoid paying UK tax on overseas earnings and capital gains. They only pay tax on "money entering Britain" or sums below £2,000 in the tax year.

According to The Independent: "For a flat annual charge of £30,000-£50,000 it is possible to opt out of tax on overseas earnings. The arrangement is used by the international super-rich and can lead to dramatically reduced tax bills for those with businesses registered in low-tax jurisdictions."

Abolition

During a speech at the University of Warwick on 8 April Miliband said: "Why should people be able to enjoy all the virtues of our great country and not pay tax like everyone else? Why should there be one rule for some people and another rule for everyone else? It isn't just. It holds Britain back. The next Labour government will abolish the non-dom rule."

According to The Telegraph: "Tens of thousands of entrepreneurs and business leaders will leave Britain because of Labour's 'cataclysmic' plans to scrap the 'non-dom' tax status, experts have warned. Leading tax barristers warned that 30,000 of Britain's 115,000 foreign investors could leave Britain in the wake of Ed Miliband's announcement that a Labour government would abolish the tax rules surrounding non-doms."

Miliband claimed hundreds of millions of pounds could be raised by abolishing current non-dom rules (or "loopholes" as Labour described them on Twitter), which the Labour leader said was "the right thing to do". But according to The Telegraph, non-doms still pay £8.2bn in tax ("as much as 10 million low-income workers" they estimate).

Archaism

You might not expect the Financial Times to come out against existing non-dom rules, however, a 1 March FT View piece ("The madness of King George III's non-dom tax system") did just that. It read: "Britain should sweep away the archaism that allows people to claim a domicile that differs from their nationality or residence. Few other civilised countries feel the need to offer such privileges to the wealthy. Liability to taxation should be solely based on residence."

It continued: "More than two centuries after the introduction of income tax by Mr Pitt, his successors should end the egregious situation where the wealthiest enjoy the privileges of UK residency without paying their fair dues to the exchequer. The anomaly of non-dom status cannot be defended. It should be scrapped."

Disarray

The day after Miliband made his announcement the Daily Mail accused Labour of being in "disarray over non-doms" (embarrassingly, footage from earlier this year emerged of shadow chancellor Ed Balls warning that abolishing non-dom rules would cost Britain money), with its leader backtracking by "effectively only proposing a time limit" rather than abolition.

According to the Daily Mail, Graham Aaronson QC, "who chaired an independent committee which drew up new rules against tax avoidance, said the non-dom regime did need reform" but was "scathing about Labour's proposals, which he said would cost the country dear". He advised the "Treasury two years ago [that] the right to pass [non-dom status] on to heirs should be scrapped, and suggested he also favoured removing the right for British citizens to claim it."

Blog written by freelance editor, copywriter and Start Up Donut editor Mark Williams.

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10 tips for a trouble-free financial year-end

March 31, 2015 by Tax Donut contributor

10 tips for a trouble-free financial year-end{{}}With financial year-end approaching, so too are those headaches caused by getting the accounts in order to keep HM Revenue & Customs happy. The job of keeping the business financially and legally sound can feel tough when the deadline approaches. However, there are some simple steps business owners can be taking now, and throughout the year, to reduce those financial year-end frustrations.

  • Maintain up-to-date and accurate bookkeeping and management accounts to help you spot and deal with any issues early on which may affect your ability to pay HMRC liabilities when due.
  • Look after and review cashflow banking requirements and obligations regularly. You need to foresee your HMRC liabilities and make sure realistic banking arrangements are in place in advance. These should be under constant review anyway to make sure they’re realistic and achievable, but especially so at year-end.
  • Create, review and amend your budget to reflect business requirements, including all HMRC liabilities.
  • Get to know the HMRC calendar:
    • 5 April – last day of the 2014/15 tax year.
    • 19 May – last day to file P14, P35, P38 and P38A returns (without incurring penalties).
    • 31 May – last day to issue 2014/15 P60s to employees.
    • 6 July – deadline to file P11Ds, P11 D(b)s and P9Ds and issue copies to employees.
    • 20 July – deadline for payment of 2014/15 Class 1A NICs.
  • Check your P60 figures are correct. Create a payroll summary report and statutory payments detail report and compare these to your P14, P60 and P35. The amounts on the P11 should match the P14/P60.
  • Check for common online submission errors. The slightest error or omission will lead to the submission being rejected and/or penalties. Common errors to watch out for include incorrect or blank NINOs (National Insurance Numbers) and using the wrong format for postcodes. Check and double-check everything before finalising your submission.
  • Spring clean your procedures. Year-end is a good time to review the running of your business as a whole. Review all policies and procedures, not just accounts. Use it as a time to clean up everything from desks and working spaces to company policies, ensuring that all files, bills and invoices are brought up to date.

Copyright © 2015 Jonathan Wright, partner at Richard Nelson LLP, which you can follow on Twitter.

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Budget round up 2015

March 18, 2015 by Fiona Prior

The Chancellor, George Osborne, delivered his Budget today – his last before the May general election. Although it gave him a chance to break the current political stalemate and gain ground over the other political parties, his hands were already tied by his pledge that there would be “No giveaways, no gimmicks”.

This pledge came despite calls from business support groups for the Annual Investment Allowance (AIA) to become permanent so that businesses could invest with confidence. John Longworth, director general of the British Chambers of Commerce said: “Businesses have grown tired of constant chopping and changing in the UK tax system. They need long-term certainty, rather than short-term incentives, to help support investment decisions.

“A long-term investment allowance would give businesses of all sizes much-needed certainty. Our proposals would also allow for premises improvements to be included in the scheme, which are crucial to firms looking to expand their workforce or enhance their efficiency.”

This call was echoed by John Cridland, director-general of the Confederation of British Industry (CBI), who also argued that the AIA should be increased: “A permanent AIA set at £250,000 will get more of our mid-sized companies investing in their factories and production lines, with the UK currently comparing poorly with many key European neighbours, where smaller firms account for half of total business investment.”

Darren Fell, Managing Director of Crunch Accounting, was keen to see measures that would boost the UK’s self-employed business owners: “There's no doubt the self-employed have made the biggest contribution to the UK's economic recovery, but have been largely ignored by policy-makers. Now is the time to change that.

"We recently conducted some research that showed around 2.5 million self-employed business owners will favour parties that have strong policies for freelancers and contractors at the General Election, so legislation that will specifically benefit one-person businesses is very much an election issue. It remains to be seen if the Coalition will realise this before May."

So did the Chancellor listen, and deliver a Budget for business? The main headlines were:

  • Corporation tax: Confirmation that the corporation main rate and small business rate will be aligned at 20% from April 2015.
  • Film tax: This will be increased to 25% (subject to State Aid approval) and a new Orchestra tax relief of 25% will be introduced from April 2016.
  • Diverted Profits Tax: This new tax is designed to prevent businesses diverting profits overseas to avoid tax and will take effect from April 2015.
  • Business rates: A major review of the business rates system is to be completed by April 2016.
  • Business rates: Pilot schemes are to be established which allow participating authorities to keep 100% of any additional business rate revenue above forecast revenue from April 2015.
  • Enterprise: Eight new enterprise zones have been announced.
  • R&D tax relief: As previously announced, the above-the-line R&D tax relief will increase to 11% for the main scheme and 230% for the SME scheme.
  • Growth Loans: The British Business Bank will launch a pilot ‘Help to grow’ loan programme for businesses seeking between £500,000 and £2 million.
  • National Insurance: Employer NICs will be abolished for employees under 21 from April 2015 and abolished for apprentices under the age of 25 from April 2016.
  • Simplification of tax: Class 2 contributions will be abolished for the self-employed during the next parliament.
  • Simplification of tax: The annual self-assessment return will be abolished completely in 2016 and replaced with a digital tax account. The digital tax account will also calculate and collect tax and National Insurance Contributions.
  • Employee benefits: There will be a new exemption for benefits and expenses costing less than £50 from April 2015. The threshold below which employees do not pay income tax on certain benefits is to be replaced with other allowances in April 2016.
  • Personal Tax Free Allowance: This will be increased to £10,800 in 2016/17 and £11,000 in 2017/18. The basic rate limit for 2016 will be £31,900 and the higher rate limit will be £42,700.
  • Enterprise Investment Scheme: There will be a new £15 million cap on investments that companies can receive under EIS (£20 million for ‘knowledge intensive businesses’).
  • Seed Enterprise Investment Scheme: The requirement that 70% of investment money must have been spent before EIS or Venture Capital can be raised is to be abolished.
  • Social Investment Schemes: Subject to State Aid approval, investments in Social Venture Capital Trusts will receive a 30% income tax relief.
  • Continental Shelf Investment Allowance: There will be a new basin-wide allowance to support investment in the UK continental shelf, replacing existing offshore field allowances.
  • VAT: The registration threshold increases to £82,000 from 1 April 2015 and the de-registration threshold will increase to £80,000.
  • Personal savings: The first £1,000 of interest on savings to be tax-free.
  • Personal savings: There will be greater flexibility for ISA investors. Investors will be able to withdraw and replace money invested in ISAs without it counting towards their annual ISA savings limits.
  • Personal savings: A new Help to Buy ISA will be launched. First time buyers will be able to save up to £200 per month. The Government will add 25% and an additional bonus of up to £3,000 when the house is purchased. Where more than one person is buying the house, each can benefit from a Help to Buy ISA.
  • Personal savings: The list of qualifying investments will be extended to include bonds issued by co-operatives and community benefit societies from summer 2015.
  • Personal savings: The Premium Bond Investment limit is to increase to £50,000.
  • Fuel duty: The planned September Fuel duty increase has been scrapped.
  • Duties: Tobacco and gaming duties have been frozen.
  • Alcohol duty: Duty on general beer, spirits and lower strength cider reduced by 2%. The duty rate on wine below 22% abv and high strength sparkling cider will be frozen.
  • Air passenger duty: This will increase by RPI from April 2016. Children under 12 are exempt from 1 May 2015 and children under 16 from 1 March 2016.
  • Company car tax: There will be a 3% increase in company car tax from 2019-20. Tax on low-emission cars will increase more slowly than previously planned.
  • Petroleum revenue tax: Cut from 50% to 35% for chargeable periods ending after 31 December 2015.
  • New Horserace Betting Right: Replacing the Horserace Betting Levy and applying to all bookmakers, wherever located, who take bets from British customers on British racing.
  • Fuel benefit and van benefit charge: Both to increase by RPI from April 2016.
  • Vehicle excise duty: Increasing by RPI from 2015.
  • Enhanced capital allowance for zero-emission goods vehicles: This will be extended until March 2018.
  • Export: Doubling of the support available to exporters trading with China.
  • Pension reform: Reduction of the lifetime allowance for pension savings from £1.25 million to £1 million from 2016.
  • Gift Aid Small Donations scheme: Increased from £5,000 to £8,000 from April 2016.
  • Annual Tax on Enveloped Dwellings (properties owned by corporate entities): As announced in the 2014 budget, ATED will be extended from April 2015 to properties worth over £1 million.
  • Tax-free childcare: The limit that can be claimed by parents of disabled children will be doubled to £4,000 per child per year.
  • Bank levy: This will increase from 0.156% to 0.21% from 1 April 2015.
  • Digital Communications Infrastructure Strategy: £600 million to be spent freeing up spectrum frequencies for 4G mobile communications and further measures to deliver broadband to rural areas.

Responding to the Chancellor’s budget, Darren Fell of Crunch Accounting said: "It's been a long time coming but it seems George Osborne is finally recognising the importance of the self-employed workforce to the UK economy. The removal of Class 2 National Insurance contributions is a step in the right direction, and the potential for the removal of the annual Self Assessment tax return is a real coup.”

James Pattison, CEO of Startup Direct, commented: "The simplification of the tax system will be music to the ears of stressed business owners and sole traders, many of whom may now feel more able to handle their own tax affairs and save accountant’s fees.

“However, it’s a shame the Government didn’t go further to boost enterprise and support SMEs, which have been the driving force behind the economic recovery so far. A pledge to fund the creation of co-working spaces for start ups would have been a cost effective way of delivering real, practical help to people wanting to start or grow a business, in an inspiring, efficient and super-collaborative environment. The Chancellor has missed a trick which would have delivered maximum help to entrepreneurs with minimal Government investment.”

Budget 2015 small business coverage on the Donuts

March 16, 2015 by Fiona Prior

Budget 2015{{}}The Chancellor of the Exchequer, George Osborne, will announce the 2015 Budget on Wednesday 18 March.

(Updated following the Budget, 18 March 2015)

Throughout the day we will be covering the key points affecting small businesses:

  • We’ll be tweeting about the Budget announcements from the @StartUpDonut and @TaxDonut Twitter accounts. Tweet along with us and let us know your response.
  • After the Chancellor’s statement, we’ll be posting our Budget 2015 summary for small businesses on the Tax Donut and in our news section we’ll be gauging reaction from small firms and their representatives.

Check this page for Budget 2015 updates and links to news and comments:

Why communicating auto-enrolment requirements to SMEs needs improvement

March 05, 2015 by Tax Donut contributor

Why communicating auto-enrolment requirements to SMEs needs improvement {{}}The Pensions Regulator (TPR) is in the process of sending out letters to 1.5m small and medium-sized businesses across the UK, letting them know of their automatic enrolment duties, what they have to do next and the date by which they have to comply.

Given that more than 45,000 small businesses will need to set up a pension this year and more than half a million in 2016 – or face heavy fines for not doing so – I’m still amazed by the general lack of awareness when it comes to automatic enrolment. But then again, there hasn’t been a wealth of information for small-business owners.

Auto-enrolment is here to stay and – to date – among larger firms, opt-out rates have been relatively low. In December 2014, the Department for Work and Pensions reported that the five millionth person had joined a workplace pension through auto-enrolment. However, what we have to remember is that this only represents three per cent of businesses in the UK. There are a further 97 per cent to go - more than 1.5 million businesses have yet to comply.

In any small business, time is precious. Owner-managers rarely have the capacity to read journals or attend events – or do anything that distracts them. Getting the automatic enrolment message across to this audience is not easy, but more needs to be done or there is a real danger people will leave it too late or get fined.

I really believe now is the time for the Government to issue specific warnings to small businesses not to put automatic enrolment on the backburner. The messaging needs to highlight that it doesn't need to be complex or boring – two adjectives often used to describe pensions.

Failure to communicate effectively will inevitably result in more businesses putting a pension in place late and getting fined. It will also continue to fuel the confusion around the whole area of automatic enrolment and the benefits it will bring to millions of people not already saving for their future.

Copyright © 2015 Matthew Mitten, director of Enrolsme, provider of auto-enrolment solutions for SMEs.

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