Tax Tips - June 2012

There is a lot happening in the tax world this month so please have a look through the below five important tax tips for you to think about.

1. If you have received notices from HMRC informing you that you have under or overpaid tax for the year 2011/12 then this is a result of an annual check of PAYE carried out by HMRC and that an underpayment will most likely be coded out in your PAYE code.

2. There could be potentially a large tax saving if you you regularly draw a large bonus remuneration or dividend from your company and you defer this income until after 5th April 2013 where the tax rates get reduced slightly.

3. Another warning about various marketed tax schemes is that these are often very expensive to get involved in and more importantly that they can ultimately be found to be ineffective by HMRC and the courts, or event countered by retrospective legislation.

4. Are you involved in software development? Then you could take advantage of the extremely advantageous and generous tax relief known as research and development relief. Provided you can show that the various conditions are met then you could obtain a tax deduction of 125%.

5. We have seen over the past few years a rise in the popularity of personal service companies. The main area of concern for HMRC is that employees could provide their services through a medium of a company and as a result avoid PAYE and National Insurance. In the light of this HMRC has produced a business entity test which asks the customer a number of questions and scores the results on a points system. This is a good measure in determining whether someone is caught by the IR35 legislation. Consider applying this test in determining your risk factor.

I hope you have found these useful and should you require any tax assistance please do not hesitate to get in touch

Yours in tax

Mitch the Tax Man 

mitch@ljd.uk.com

P.S. As previously mentioned, I like to grow my business on a referral basis. I would therefore very much appreciate if you could suggest to me any colleagues, friends or family members of yours who might be interested in our services and I can guarantee my utmost discretion and professionalism

78% Tax Relief with The Seed Enterprise Investment Scheme

As a tax practitioner I am often asked by clients how they can reduce their tax bill. I am always cautious when it comes to pointing clients in the direction of tax efficient investments but the latest offering known as the Seed Enterprise Investment Scheme (SEIS) offers some of the most generous tax reliefs seen in a long time.

SEIS is designed to help small, early-stage companies raise equity by offering generous tax reliefs to individual investors who purchase new shares in qualifying companies. The investor obtains 50% income tax relief up to a maximum of £100,000 invested and the company can raise up to £150,000 investment in total.

The scheme is intended to recognise the difficulties early stage companies face in obtaining investment, by offering tax reliefs at a higher rate than that offered by established tax efficient investments such as the existing Enterprise Investment Scheme (EIS). The SEIS should help new companies in the UK find funding and I expect there to be a steady rise in new company formations over the coming year. I think SEIS is an excellent scheme and what is more remarkable is the fact that, even if you are a basic rate tax payer, you can still benefit from 50% relief (provided you have paid sufficient tax in the year in question.

Furthermore there is an exemption from capital gains tax on gains realised from the disposal of assets where such gains are reinvested through the new SEIS. This means that the total tax relief could reach a staggering 78% if taxable gains are reinvested into the scheme: 50% tax relief and 28% capital gains tax relief. This means that if someone is sitting on a capital asset (say a rental property purchased 30 years ago) and if they were to sell it today for a large profit, resulting in a capital gains tax liability at 28%, if they invest the gain through a SEIS qualifying company then there will be no capital gains tax to pay!

To give you an example, Gareth has an uncle who is about to open a new stationery office via a limited company. He is sure his uncle would make a great success of the company. Gareth is a basic rate tax payer and he wishes to invest in his uncle's SEIS approved company.

He will claim a 50% deduction from his income tax liability on the investment. Furthermore, Gareth has made some capital gains on the sale of a share portfolio. He will invest the gains made into the stationery company resulting in the gains becoming tax free. Therefore, Gareth will get 78% tax relief on his investment.To claim the SEIS relief, the investor must have received a compliance certificate from the issuing company. The company must not have more than 25 employees, no more than £200,000 gross assets and be not more than 2 years old. Other conditions to bear in mind are that an investor cannot have a substantial interest in the company (i.e. greater than 30% shareholding) and cannot be an employee. Curiously, however, directors are not excluded.

The shares must be held for a period of three years from the date of issue for relief to be retained. If they are disposed of within that three year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.

Application to HMRC for SEIS is made using Form SEIS1.

The company cannot submit an SEIS1 until either:

• it has been trading for at least four months


• if not yet trading, it has spent at least 70 per cent of the monies raised by the relevant issue of shares

HMRC have a special unit dealing with SEIS and advance clearance can be obtained that the company's trade qualifies.

In conclusion, I believe this is a truly great incentive for investors to invest in UK companies and will generate a lot of interest. I have been approached by numerous clients who want to set up new trading companies or investors looking for SEIS companies to invest in. Either way I would seriously recommend using SEIS to invest in these companies, especially as the legislation on connected persons is being relaxed, meaning you can invest in a company established by your partner/wife/family. However, bear in mind, if you are considering investing in a new company there is significant risk attached. Always seek professional advice before investing. For further information please do not hesitate to contact me. mitch@ljd.uk.com

Thank you for reading my blog

Mitch the Tax Man