The dreaded word that most, if not ALL, business people hate!
I, for one, absolutely hate the tax system and think it’s completely ridiculous the way they do things in the UK when it comes to paying business and personal tax. However, this article isn’t about the negatives as I could write pages worth on that. No, this article is actually to shine some light on the thing that we actually all hate.
“In this world, nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
Anyway, let’s move onto some positives….
If you’re in the UK, then this post will appeal to you, and if I can hopefully inform or help just one person who reads this post, then it would be more than worthwhile. Apologies to those of you outside of the UK, but I’m sure you may have your own schemes like the ones I’m about to inform you of below.
Firstly I’d like to say, if it weren’t for my fantastic accounting team behind my companies, I too wouldn’t have a clue about these schemes, as you can read in my 5 Business Lessons I Wish I Knew when Starting post. It’s crazy how hidden this information is.
The fact of the matter is both these schemes involve the government giving you tax relief, i.e. you paying less tax, so there’s no surprise they don’t tell you this shit at school or send you a letter through the post like they normally do. You know, those brown letters from HMRC the very day after your tax payment is due!
I was discussing business yesterday with my good friend Max, founder of RebelHead Entrepreneurs, and he was unaware – like many I have spoken to – about these benefits, so I wanted to write this post in the hope that it alerts and saves many others their money!
Before we start, I don’t offer any legal advice nor do I pretend to know everything about the schemes, so if you’re serious about what you read, visit the gov.uk website and ring your accountant for advice.
Let’s get into it….
For legal purposes: I am NOT an accountant nor an advisor, if you wish to follow any of what I say below you do at your own risk.
SEIS (Seed Enterprise Investment Scheme)
What is it?
SEIS is a scheme setup to help small businesses raise financial funding by offering individual investors tax relief on their purchases of shares in the company. It was set up to basically help start-ups and new companies overcome the hurdle of raising capital in order to grow their business.
If you reside in the UK and are investing into a UK company from your personal income, you have a good chance at claiming SEIS. There are various benefits of claiming SEIS to the investor, which makes it a good pitch if you’re a company looking for investment.
These investor benefits include:
- Income tax relief of 50% on your next return
- Exemption from capital gains tax on the profits of your investment
- Offsetting losses against your income tax
- Exemption from inheritance tax
A recent study showed that, if you were to invest £10,000 through an SEIS investment in the UK and the company happened to go into administration or lose all your money, you could claim back a massive £10,000.
It’s almost like you’re investing 50% of the money for 100% of your share equity.
To flip it on its head, imagine what a bargain tool this is when you’re trying to raise money for your start-up in the UK. If you approach UK investors as we did with “Project P”, you can pretty much tell them they will get 50% of their investment back in tax relief on their next return.
Am I getting a soft spot for the UK government!?!?!
Who can claim it?
Before you run to potential investors and tell them they can claim 50% back on their investment, you need to first make sure you both qualify for SEIS. There are several key factors, and again I’m not here to offer you legal advice, so please don’t take my word for it. These qualifications include:
- You must be a UK registered company
- Your investors must be in the UK and investing with personal money
- The company must have a bank account
- The company must have been trading for 4 months
Often, this can be done by simply opening a company bank account and then buying something for the company, such as a domain and hosting package, or purchasing your own shares.
How to claim it:
If you qualify for the above and you have a party interested in investing in your company, you can then submit a SEIS form via:
You can simply have your accountant submit the form and then the HMRC will reply back in due time with a yes or no based on your submission. If it’s a yes, you can then move forward with your investors and ask them to submit their investment into the company. Once this is done, you should have your accountant inform the HMRC of the investment and ask them to forward the investors’ SEIS certificates.
Once approved and the certificates are sent, your investors just need to submit them with their tax return and boom – 50% is deducted from their next return!
There are lots of fine print and different boxes you have to tick, so as always please seek the advice of the pros before you move forward. For more information, you can read here.
We’ve personally just tied up two cases in two different companies with this relief and both have been approved.
Imagine how many people have invested into UK companies and NOT claimed this, eh?
Luckily for you, you now know!
What is it?
Possibly the best tax relief offered to anyone in the UK with a UK business!
What If I told you that you could sell your company today for one million pounds and only pay 10% tax on the total amount and keep the rest for yourself tax free? Well, that in a nutshell is entrepreneurs’ relief!
This is a scheme introduced to encourage UK entrepreneurs to basically make something of their lives and have a go. In return, the UK economy obviously gets a boost, and we as business owners only pay 10% tax on the sale of our companies on the first 10 million.
There’s only one benefit for this, but it’s a huge one:
- 10% capital gains tax
So as I said, if you were to sell your company for one million, you would only pay one hundred thousand in tax and get to keep nine hundred thousand for yourself. That’s WAY better than any corporation tax or higher rate tax percentages. It seriously does make the idea of selling your company or flipping businesses very attractive, right?!
Who can claim it?
As always, there are some criteria you have to meet before you can claim ER, but it’s a little more complicated with ER:
- The shares must be held in the company that is trading
- The individual vendor must be an officer or employee of the company
- The vendor must own at least 5% of the company’s ordinary share capital and be able to exercise 5% of the voting rights within the company
- All of the above must have been in position for at least 12 months prior to selling the company
Putting it in basic terms, if you open a UK company and trade for over a year and you own more than 5% shares and work for the company, you are eligible for Entrepreneurs’ Relief.
How to claim it:
If you think you qualify for ER, then always check with your accountant before selling your company. Once ready, your accountant or you can submit this form to HMRC and claim the relief.
You will then be notified and will proceed with the sale of your company.
For full information be sure to checkout this link here.
Research and Development
What is it?
Research and Development also known as R&D is tax relief that may reduce your annual tax return.
This tax relief can be claimed if your company qualifies for R&D.
The exact return that you get for your “qualifying expenditure” is not so straightforward to calculate, since it depends on your profit or loss for the year, and on your rate of corporation tax, but the rough thumb rule from 2015 onward is,up to 24.75% for unprofitable companies and up to 25% for profitable ones.
It was setup to encourage UK businesses to push the boundaries and find new and innovative ways of doing things. Basically if your company is involved in activity that spends funds on researching or developing new and advanced technologies that haven’t been tried and tested before, than you may well be subject to some tax relief. As alway there’s lots of guidelines when it comes to defining what R&D is but in short if your company is involved in any of the following:
- advance in science or technology
- directly contribute
- scientific or technological uncertainty
then you may be able to claim a relief on your companies tax bill.
To put it into simple terms, if you’re spending money on developing something that hasn’t been done or tested before, you could qualify. So everyone reading this who’s every developed a product, software, website or such that has never been done before, get on the phone to your accountant now!
Who can claim it?
Again there’s certain criteria you must fit to proceed with an R&D claim but the key thing to think about is “am I making an advance in technology, am I doing something that no one has done before me”. Even if it’s just a small part of what your company does you can still claim the “percentage” of R&D that your company has worked on any advances.
When it comes to the “what” you can claim for, it’s the following:
- Employee costs
- Staff providers
- Payments to clinical trials volunteers
- Subcontracted R&D expenditure
- Capital expenditure
to give you another case scenario, last year FixForums spent a significant figure on building out forum directory modifications and a XenForo email auto responder that no one has ever tried to build before. We ended up filling a successful R&D claim for the proportion of time, money and resources that went into building the softwares. It was an advance in forum technology.
How to claim it:
Before claiming as always read all the details and ask your accountants advice, but you can make a claim in your CT return or up until 2 years after your activity.
There’s a few forms you’ll need to fill out with your accountant but you can find out full information here.
Once again, I am NOT an accountant so please always do your research and ask your accountant for help regarding the above, I am NOT liable for any advice I give in this article, this is simply to get your mind flowing and make you aware of what you’re entitled to!
If this article helps just one person claim relief from the above, my work here is done!