Pre Budget Update Implications for Growth 8 December 2011 Jill Evenden - EBS Chartered Accountants

Review of the report Overview – main announcements SEIS Business tax R and D (NB Draft clauses out today!!)

Overview Predictions GDP Growth %.7%2.1%2.7% Main contributions Business investment.6%.7%.9%

Main Business Announcements New tax reliefs for start up businesses Corporation tax rates down Enhanced capital allowances for six further enterprise zones R and D “above the line” for large companies Loan guarantee scheme – easier access to funds General anti-avoidance Tax relief for gifts on “pre-eminent objects” (give your work of art to the Government!)

New Seed Enterprise Investment Scheme To encourage investment to higher risk start ups two announcements: 1) SEIS 2) Simplication of EIS and VCT (relaxation of connected party rules)

EIS/SEIS continued EIS - 30% New SEIS 50% EIS Rules:. Not “connected” for two years before shares issued, but note Business Angels (be very careful of rules). Qualifying trade – raft of non qualifying (largely property backed, development etc ). Investment up to £500k 2012, £1m from then on. Keep for three years no capital gains tax. Cash- 80% must be used 12 months from date of issue.

SEIS From April 2012:. 50% income tax relief regardless of marginal rate. Limit of £100k per annum for individuals (£125k per company so not much!). Capital gains tax exemption on gains realised in and reinvested through SEIS the same year.

Planning opportunity? For start ups look at deferring until after April 2012 Be careful of loans – cant lend before shares issued as rules are have to be “subscribing for cash”

EIS – the how? Company and share issue must qualify Individual must qualify Administered by Small Company Enterprise Centre (quite helpful!) Upfront assurance Form EIS 1 – wait until after 4 months of trading

Corporation tax. Main rate to be 25% from April 2012 (24% 2013). To encourage growth. Small companies rate 20% Points to note: - Marginal rate dropping ( /30%) - Bonus v dividend at higher Corp tax rate

R and D Invest an additional £75m in supporting technology within SMES Encourage R and D in larger companies “above the line” Ensuring that SME R and D tax credits not reduced

Why encourage R and D? To encourage growth and enable businesses to grow SME relief 200% - increasing to 225% from 1 April Planning opportunity? May not be worth deferring R and D

What is R and D?.When a project seeks to achieve an advance in science or technology. The activities that directly contribute to achieving this advance are R and D. Must not be just for commercial gain

R and D how it works Profitable company – relief from corporation tax Loss making company – carry back loss/carry forward or set off paye – limited to paye paid (fixed rate here so can lose out by this method) Going concern

R and d what costs can you claim for? Includes: Consumables Salary costs (inc bonuses if paid by time of claim) – note work by main shareholder Utilities Sub contract – 65% of invoice

How do you do this? On corporation tax return for the year Carry back Must have spent over £10,000 to qualify for relief (nil from April 2012)

R and D other points Relief reduced by any grant income Record keeping – need to be able to substantiate Detailed workings need HMRC now asking more questions!

Conclusion Pre Budget Update Business Tax SEIS R and D