Category: Business Advice

Tax breaks for EIS and SEIS company investors

Tax Breaks for EIS Company Investors

Investors who are not connected with the company may claim income tax relief of 30% of the amount that they invest in qualifying EIS companies up to £1 million each tax year (or up to £2 million if at least £1 million of that is invested in knowledge-intensive companies). Thus, a £10,000 investment would result in a £3,000 reduction in the investor’s income tax liability.

The connected persons tests are complicated. For example, directors cannot claim EIS tax relief if, at the time the shares are issued, they are a paid director of the company – unless the payment is a ‘permitted payment’. They may, however, become a paid director after their investment under the ‘business angel’ rule.

Provided the shares are held for at least 3 years, the income tax relief is retained and any gain on disposal of the shares would be exempt from capital gains tax.

It is also possible to defer capital gains on any asset disposal by reinvesting the gain in qualifying EIS shares.

Tax Breaks for SEIS Company Investors

Investors who are not connected with the company may claim income tax relief of 50% of the amount that they invest in qualifying SEIS companies, up to £150,000 in each tax year. Thus, a £10,000 investment would result in a £5,000 reduction in the investor’s income tax liability.

The connected persons tests are complicated and similar to the EIS rules; however, directors can claim SEIS tax relief.

Provided that the shares are held for at least 3 years, the income tax relief is retained and any gain on disposal of the shares would be exempt from capital gains tax.

A further relief for SEIS investors is that 50% of the amount invested may be set against capital gains that year. Thus, a £10,000 investment would mean that the investor could deduct £5,000 from their capital gains that year in addition to the £5,000 reduction in their income tax liability.

Please talk to us about SEIS or EIS schemes for your business.

Do you need further support on SEIS or EIS schemes? We offer a wide range of services. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

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HMRC have recently updated their guidance for companies looking to attract investors to buy shares in their company and this blog post outlines tax-efficient finance for your company.

If structured correctly, and if the company qualifies under the Enterprise Investment Scheme (EIS) or the Seed EIS rules, the investors can potentially take advantage of a number of generous tax breaks.

Under the EIS, the company can raise up to £5 million each year, with a maximum of £12 million raised in the company’s lifetime. This also includes amounts received from other venture capital schemes. The company must receive investment under a venture capital scheme within 7 years of its first commercial sale.

The size of the issuing company is crucial as the company and any qualifying subsidiaries must:

• not have gross assets worth more than £15 million before any shares are issued, and not more than £16 million immediately afterwards.
• have less than 250 full-time equivalent employees at the time the shares are issued.

The investment must meet the “risk to capital” condition, which means:

• the company must use the money for growth and development.
• the investment must be a risk to the investors’ capital.

‘Growth and development’ means the company will use the investment to grow things like its revenue, customer base or number of employees.

There are several other complex scheme rules that need to be followed so that the investors can claim and keep EIS tax reliefs relating to their shares. Tax reliefs will be withheld or withdrawn from the investors if they, and the company, do not follow the rules for at least 3 years after the investment is made.

It is advisable to apply for Advance Assurance from HMRC that the company is an ‘EIS qualifying company’ before the shares are issued.

For more details see: Use the Enterprise Investment Scheme (EIS) to raise money for your company – GOV.UK (www.gov.uk)

Seed EIS (SEIS) is designed to encourage investment in small start-up companies and, like EIS, provides a number of tax breaks for individuals who buy new shares in a company. The company must not have been trading for more than 2 years when the SEIS shares are issued.

Only the first £150,000 of share capital raised by the company qualifies for Seed EIS relief. However, this can form part of a larger share issue with subsequent share issues qualifying for EIS relief up to a £5 million annual limit.

Like EIS, the tax reliefs will be withheld, or withdrawn, from investors if the rules are not followed for at least 3 years after the investment is made.

There is a key condition that the company is an unquoted company carrying on, or preparing to carry out, a qualifying trade at the time that the shares are issued.

Another important condition to qualify under Seed EIS is the company and any of its subsidiaries must:

• not have gross assets over £200,000 when the shares are issued.
• not be a member of a partnership.
• have less than 25 full-time equivalent employees in total when the shares are issued.

Like EIS, it is advisable to apply for Advance Assurance from HMRC that the company is a  qualifying company before the shares are issued. For more details see: Use the Seed Enterprise Investment Scheme to raise money for your company – GOV.UK (www.gov.uk)

We offer a wide range of services which are unique to your business. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Advisory fuel rate for company cars – June 2022:

Unbelievably there were very few changes to the HMRC advisory fuel rates from 1 March 2022, which may not have been your experience at the filling station!

Now that the increased prices have fed through into the HMRC calculations there are some significant increases from 1 June 2022, as set out in the table below.

In cases where the employee pays for the car fuel, these mileage rates should be used by the employer to reimburse the employee for business journeys.

In cases where the employer pays for the car fuel, these mileage rates should be used by the employee to reimburse the employer for private mileage, if they want to avoid a fuel benefit in kind arising.

Where there has been a change, the previous rate is shown in brackets. The previous rate can continue to be used until 30 June 2022, if so desired.

Note that for hybrid cars the appropriate petrol or diesel rate should be used.

Do you need further guidance on the Advisory fuel rate for company cars? We offer a wide range of services which are unique to your business. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

The Employment Allowance (EA) is a £5,000 allowance set against employer National Insurance Contributions (NICs) and has to be claimed each tax year by qualifying employers. The EA was increased from £4,000 to £5,000 this tax year to help to soften the blow of the 1.25% increase in employer contributions, now calculated at 15.05%.

If two or more companies or charities are connected with one another, then only one of them may claim the EA.

Employers are not eligible to claim the EA where their employers’ Class 1 National Insurance liabilities in the previous tax year exceeded £100,000.

Another important exclusion from the EA are single director companies where the director is the sole employee of the company.

Do you need further guidance on The Employment Allowance? We offer a wide range of services which are unique to your business. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Employee benefits on form P11D – report by 6 July:

P11D forms for reporting expenses and benefits in kind provided to employees and directors in 2021/22 need to be submitted by 6 July 2022.

Remember that reimbursed expenses no longer need to be reported where they are incurred ‘wholly, exclusively and necessarily’ in the performance of the employee’s duties. HMRC do however expect internal controls to be in place to ensure that the reimbursed expenses qualify under these terms.

Note also that non-cash ‘trivial benefits’ that cost no more than £50 do not usually need to be reported. This typically covers non-cash gifts to employees at Christmas and on their birthdays.

Do you offer Employee benefits? We offer a wide range of services which are unique to your business. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.

Buying a second hand electric car for your business:

The shortage of semiconductors has meant long delays in the delivery of new cars. This has caused many company car drivers to choose a second hand car instead, but what are the tax consequences?

Unless the car has zero emissions, the capital allowance rules are the same for new and used cars bought by the business. Plant and machinery capital allowances may be claimed on the purchase price of the car at either 18% or 6%, depending on whether the CO2 emissions for the vehicle are below or above 50g CO2 per km.

Where a zero-emission car is acquired by the business, a special 100% first year allowance only applies to new cars. There is however an exception for certain ex-demonstrator cars. HMRC accept a car is unused and not second hand provided it has been driven for a limited number of miles for the purposes of testing, delivery, and test driven by potential purchasers.

When calculating the P11D benefit of company cars the original list price inclusive of extras should be used, not the purchase price. Hence the P11D value for a second hand company car may be significantly higher than the price paid for the vehicle.

Are you considering buying a second hand electric car for your business? We offer a wide range of services which are unique to your business. Our team of chartered accountants have a wealth of experience in a broad range of sectors, from construction and property to the charity sector. Our team work hard to ensure they create smart and effective tax-efficient solutions for start-ups to optimise growth and help them succeed. If you want to learn more about how the team can help or simply want some start-up advice from a trusted accountant do hesitate to contact us. For more information please do hesitate to contact us on 0161 962 1855. Alternatively you can email us using the form below and we will contact you as soon as possible.

Our fantastic team at A&C Chartered Accountants are here to help.