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

Child Benefit - The new Income Tax Charge

I recently went on a brilliant tax update course with my favourite tax speaker Tim Palmer taking it. He shared some very interesting stories about the latest tax investigations but he also brought us up to date with the latest tax position on child benefit, which I thought I would share with all of you as it is very interesting and probably some of you reading this will be affected.

Firstly legislation has been introduced to impose a new tax liability on a taxpayer who has income greater than £50,000, where they receive child benefit. It is important to note this is not the collective income with your partner and if your income is less than £50,000 and so is your partners, then the child benefit is not taxable. This new legislation comes into effect from 7th January 2013.

The £50,000 is 'net taxable income' i.e. after gross pension contributions but before personal allowances. For the current year (2012/13) taxpayers will pay income tax on the period 7 Jan 2013 - 5th April 2013.

Therefore if your income is between £50,000 - £60,000 you will have to pay income tax of 1% on the amount of child benefit you receive in the year, for every £100 of your income that exceeds 50k. If your income exceeds 60k however you will pay an income tax bill that actually equals the child benefit! For example if you have income of £60,000 and your partner received child benefit for 2 children of £1,752 for the year, the income tax will equal £1,752 which is the full amount received anyway giving a nil effect.

Individuals who earn above £50,000 per annum and receive child benefit will now need to register for self assessment with HMRC or face penalties in the future!

This will force thousands of individuals into a self assessment regime. Furthermore HMRC guidance states that you have to declare the amount you are entitled to and not received as the figure to go onto the retune.

If you do earn above 60k you can if you wish elect to not claim child benefit by disclaiming it permanently. HMRC will be producing a form in the coming months to enable this to happen. However my opinion is that the majority of individuals will still keep it as their partners have used the income for their children and more importantly for the 'stay at home mums' will lose the Home Responsibility Protection which will mean they may lose the qualifying years for their state pension, meaning their state pension will be lower.

I do not agree with the government on this and feel it is unfair and also to bring this into the self assessment tax regime is unnecessary and I can predict a lot of complications in the future.

As stated above this will no doubt affect a lot of you reading this as you will now need to complete tax returns and register with HMRC - Please contact me for a free initial chat and I will happily advise you

Thank you for reading my blog and please like or share with your contacts

Mitch the Tax Man

mitch@ljd.uk.com

Tax Evasion or Tax Avoidance?

Ever since the last Budget there has been a lot of commentary on tax avoidance and following on from last night’s BBC Panorama show 'the truth about tax' I thought I would share my comments and understanding on the difference between Tax Evasion and Tax Avoidance.

Tax evasion is in quite simply unlawful and can expose the taxpayer to penalties. Examples include giving inaccurate information or describing a transaction as something different from what it really is. It is basically a form of deception.

Tax Avoidance however has developed over a number of years in to what we have today in artificial schemes by which a sequence of transactions is undertaken for the sole purpose of mitigating a tax burden much like what was shown in the panorama show.

I have taken a quote from the judge in the tax case Duke of Westminster 35 that perhaps sums it up the best "A taxpayer may have a choice between two or more alternative methods of achieving a desired result. He is entitled to select the method, if lawful which avoids altogether or reduces the tax he would pay on another alternative. He is not to be taxed on the basis that a more normal method would attract a heavier tax burden. The selection of a tax effective method is called tax avoidance"

The best analysis on tax avoidance does come from case law and taken from the 'Ramsay' case the courts came up with a strategy to look at tax avoidance.

1. There must be a per ordained series of transactions

2. Into which are inserted steps which have no commercial purpose except the avoidance of tax

3. In which case the court may disregard the inserted steps in deciding how the transaction should be taxed.

4. Look at the end result.

This is the basic form the courts have been using over the past 20 years to tackle these artifical tax avoidance schemes however many sophisticated schemes have been winning. I believe now along with the Chancellor's Budget we will see more anti avoidance measures put in place potentially starting with stamp duty mitigation and in a fairer society this can only be seen as a good thing. Although how strict these provisions are remains to be seen and I suspect the highly intelligent people operating these schemes will find a way around it.

It is very hard as a tax practitioner to tell a client who wants to minimise his tax liability and has taken part in these various schemes that it is unethical and to me goes against certain principles. I believe others have to suffer and pay more tax whilst people are working within the tax avoidance legislation to sometimes not paying tax at all. However whilst it is still 'law' and the legislation has not been amended then as a practitioner you have to accept the schemes. HMRC of course operate the general anti avoidance provision. Where the scheme must by notified to HMRC by its promoter to obtain a reference number to go on the tax return. There is a £5,000 penalty for failure to notify.

Tax Avoidance is a term that should not be used loosely and can’t be interrupted in a number of ways. Whilst I would not promote any artificial schemes I am all in favour of tax planning to minimise the client’s liability and here are some examples:

1. Income bearing assets should be held by the spouse with the lowest marginal rate to tax.

2. The use of pensions can reduce tax in the years of high income working whilst making provisions when the marginal rate is lower

3. On the sale of a business there is some scope for allocating the price between different assets to reduce the tax burden

I have many more what we call 'lawful' tax planning tips.

I hope you have found this useful and provide a clearer picture of tax evasion and tax avoidance and if you would like any help with your tax or have any questions please email me mitch@ljd.uk.com


Mitch the Tax Man

Tax Tips - May 2012

It has been a while since I issued some Tax Tips, so here are 5 important tips you should be aware of for the month of May.

1. Submit your 2011 Tax Return. If you have not submitted last year’s tax return HMRC will now start charging daily penalties. Where a client has not filed a Tax return 3 months from the return due date Daily penalties will start to accrue for a period up to 90 days at a rate of £10.00 per day, the rate is fixed and cannot be changed (except by legislation) and in the majority of cases this will be an automatic process

2. HMRC has wrongly sent penalty notices to taxpayers who no longer have to submit a tax return. If you have received a penalty notice and no longer need to complete a tax return then you can write to HMRC appealing this notice.

3. Do you operate through personal service companies? If so you may be subject to IR35 rules and it is important to have a meeting with a tax advisor to see if any potential liability can be mitigated.

4. Do you operate takeaway food outlets and are you operating the present VAT rules correctly? The new proposals state VAT should be charged on all hot food takeaway except freshly baked bread.

5. End of year PAYE Employers' Return is due in by 19th May. You will needs to submit the P35 & P14 forms online by this date or face a penalty between £100 - £3,000. Even if no tax have been deducted. To avoid unnecessary penalties tell your PAYE office by May 19th that no return form is required.

I hope you found these tips useful and if you require any assistance please do not hesitate to get in touch.

Being the start of the tax year I am looking to speak with newly self employed individuals.

Have a great weekend




Mitch the Tax Man

Mitch@ljd.uk.com
@mitchyoung27

How to avoid paying Capital Gains Tax on the sale of your property?

Good morning everyone, Mitch Young from Lerman Jacobs Davis the young dynamic accountants who are committed to saving our clients hassle and money.

Well here is one for you. How can we avoid paying capital gains tax on our home?

This was a question a reader of the Daily Express asked and you can read my answer that appeared  in the National Paper 2 weeks ago below,

 “Approximately 15 years ago my parents put their bungalow into my name in the belief that if they had to go into care they would not have to sell their home to cover the cost.

My father has since passed away and my mother still lives in the property. I have been informed that, because my husband and I own our house, when my mother dies the bungalow will be classed as a second property and I will have to pay Capital Gains Tax on it.

If this is so, is there anything I can do to prevent this? I have been given lots of different advice, but nothing definite - such as putting the property back into my mother’s name (may have to pay CGT), or moving into the property and living there for six months after she dies.

Would this help, or is there anything else I could do to avoid paying this tax?”

If you sell the property and make a gain then this will be chargeable on both you and your husband. You will have to pay capital gains tax at 18% or 28% depending on your total income for the tax year. However, the good news is that the gain will be split between you and your husband meaning that both of you will be entitled to an annual capital gains exemption of £10,600 each. This will result in a total exemption of£21,200, subject to any other gains and losses you may have in the tax year.

There are ways that you can potentially reduce the gain. One way is if you and your husband move into the property for a period of time after the death. You will need to make sure that the property becomes your residence for long enough for it to be treated as your principle private residence. As a result you will benefit from capital gains tax relief of 36 months of ownership.

Also, after becoming your principal private residence, if you were then to move out and rent the property out, this would enable you to take advantage of lettings relief. This gives you a capital gains tax exemption calculated in one of three ways: the lower of the actual gain or the amount qualifying for principle private residence relief or £40,000.

It is important to point out that the actual cost of the property used for the capital gains calculation will be the market value of the property when it was transferred to you and not the original cost when your mother purchased it.

This is the 4^thtime in 6 months the Daily Express have asked me to contribute to their National Paper and this shows that they trust our knowledge, advice and proves we are a respectable, up to date young dynamic firm of accountants. I have written further articles which should appear in the near future as well.

As you know it is the start of the tax year so I would love to hear from anyone you who requires help with their tax affairs, to include freelancers, landlords and footballers.

Please contact me mitch@ljd.uk.com

Thank you for reading and have a great weekend

Mitch the Tax Man

Budget Summary 2012

I felt quite patriotic as we watched the Chancellor deliver a Budget Speech designed to encourage investment back into the UK. In today's post I will just provide you with the main points to take away from the speech however HMRC release detail notes, guidance and additions that were not mentioned in the speech itself. These get released tomorrow so Friday I will update the blog again to inform you of aspects such as pensions, SEIS and further tax reliefs mentioned in the proposed first draft of the legislation.

Main points to take away from the Budget Speech are as follows:

• From April 2013 Personal Allowance will be increased to £9,205
• The 50% tax rate is to be reduced to 45%
• Age Related Personal Allowance is to be phased away
• Child Benefit will be gradually tapered away for those that earn £50,000 at 1% deduction for every £100 over the limit, resulting in when someone earns £60,000they will not be entitled to child benefit
• Main rate of Corporation Tax to be reduced to 24%
• Stamp Duty Land Tax increased to 7% on properties valued at £2 million or over.
• Stamp Duty Land Tax charge of 15% on properties bought under a 'corporate envelope' i.e. a company
• Single Tier Pension of £140 to be brought in, consultation on this over the summer
• A general anti avoidance law to be brought in, consultation on this over the summer
• £50,000 capped amount of income tax relief available at 25% of overall income total. More details to follow on the guidance of this

The personal allowance increase is good but in reality you only will be getting around £20 pounds a month.  The phasing out of age allowance means middle tier pensioners will be hit harder as this will not keep up with inflation and the stamp duty land tax charges may see foreign suitors stop investing in UK attractive properties

As mentioned above before giving a detailed tax review I need to wait till HMRC release their budget guidance tomorrow.

Thank you for reading my blog and please feel free to pass it on !

Mitch the Tax Man

mitch@ljd.uk.com

My Predictions for the 2012 Budget

Very exciting times in the tax world as the budget approaches for yet another year. The Chancellor will unleash the budget one week from today (Wednesday 21st March) but what does he have in store for us? Today's blog post I will focus on 5 key topics I predict the Chancellor to bring up:

1. Pension

One can still obtain higher tax relief on pensions and the current 3 year carry back rule mean an individual can benefit from £50,000 contributions over a 3 year period and get relief on this. I predict Osborne to reduce the limits on pension contributions and potentially restrict the relief to 20%.

2. SEIS

As mentioned last month in my blog the new SEIS tax relief will be announced. The first draft of the legislation restricts the amount an investor can invest to £100,000 or £150,000 over 2 years but I have a sneaky feeling the government may relax these rules even further. The investor will be able to get an astonishing 50% tax relief/tax deduction on their investment. If you know of any start-up companies start investing!

3. Stamp Duty Land Tax Avoidance

I have been approached to get involved with these schemes over the past year but I have always turned down the opportunity because I believed it was only a matter of time before the government will crack down on them and that is exactly what I predict to be announced in the budget. HMRC will start issuing investigations into all these schemes.

4. Real Time Information

This is going to come in and Businesses need to be aware of it. "Real Time Information (RTI) is a priority Government programme aimed at improving the operation of Pay As You Earn (PAYE). It will make the system better for individuals and easier for employers and HM Revenue & Customs (HMRC) to operate. It also supports the introduction of Universal Credits." HMRC. They want every form submitted online on a monthly basis to do with your employees and PAYE operation. More will be announced in the budget

5. Child Benefit Allowance

I believe the original plan to stop child benefit allowance for households that have to total income of just over £40,000 is too tight and has already caused some unrest. I predict there will be a restriction on child benefit allowance but they might increase the total household income to nearer £60,000.

I am excited for this budget and as stated I am interested to hear more of the 50% tax reliefs and other tax incentives the government might have for us.

I will be analysing the budget next week on my blog

Thank you for reading

Mitch the Tax Man