Tag Archives: corporation tax

Budget 2013 – Directors and Staff Loans Reply

Accounting, Bicknell Business Adviser • Tags: , , , , ,

Bank loan

Good news, the exemption threshold for employment-related loans has been increased for 2014/15 from £5,000 to £10,000, as long as the balance is below this level there is no tax charge for employees or employers.

But there could be bad news for participators (Directors/Shareholders) who have been using one of these techniques to avoid the 25% temporary Corporation Tax charge:

1. Using a Partnership or LLP where the company is a partner or member as a way to get loans

2. Making arrangements that did not qualify as loans but the where value ended up in the hands on a participator

3. Making loans repaying them within 9 months and getting a new loan, the Bed and Breakfast approach

4. Transfers of assets

5. Loans channelled through third parties

New anti avoidance rules are coming, a consultation paper  is planned for later this year aimed at minimising the scope for abuse and there will be new legislation in the Finance Bill 2014 and Finance Bill 2015.

Be warned!

steve@bicknells.net

 

 

Things you need to know about R&D Tax Credits….. 2

Accounting, Bicknell Business Adviser • Tags: , , , ,

Laboratory Collage

Research and Development (R&D) tax relief (or credit) is a company tax relief that can either reduce a company’s tax bill or, for some small or medium sized (SME) companies, provide a cash sum. It is based on the company’s expenditure on R&D.

For there to be R&D for the purpose of the tax relief, a company must be carrying on a project that seeks an advance in science or technology. It is necessary to be able to state what the intended advance is, and to show how, through the resolution of scientific or technological uncertainty, the project seeks to achieve this.

http://www.hmrc.gov.uk/manuals/cirdmanual/cird80150.htm

These are the key questions that you will be asked when requesting an R&D Tax Credit from HMRC:

  1. How was it decided that R&D had taken place
  2. A description of the scientific & technological advance sought
  3. The uncertainties involved
  4. How and when the uncertainties were resolved
  5. Why the knowledge being sought was not readily deducible by a competent professional
  6. Were any grants, subsidies or contributions received for the project within the claim
  7. Who owns the Intellectual Property of the products resulting from the R&D
  8. Was the R&D carried out for others ie clients, this could mean your claim is rejected

Amount of relief

For expenditure incurred up to and including 31 July 2008 SMEs can deduct 150% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24 for every £100 of actual R&D expenditure. For expenditure incurred on or after 1 August 2008 SMEs can deduct 175% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24.50 for every £100 of actual R&D expenditure. The rate is further increased from 1 April 2011 to 200%, and a payable credit of £25 for every £100 of spend.

Large companies can deduct 125% in respect of qualifying expenditure incurred up to and including 31 March 2008 and can deduct 130% thereafter.

Here is a template (originally created by HMRC but updated by me) to help you calculate the value of your claim it has references to relevant HMRC guidance.

The claim is made on your corporation tax return (CT600) if you discover that you should have made a claim in a prior year its not too late, follow this link to find out how to correct prior year returns http://www.hmrc.gov.uk/ct/managing/company-tax-return/amend.htm

Case Studies and Examples

Here are some excellent examples http://www.bis.gov.uk/files/file36112.pdf

It is possible to claim for software http://www.bis.gov.uk/files/file34845.pdf

Software could be tool to enable the R&D or a goal in its own right, but simply modifying existing software isn’t R&D. It has to follow the same rules as other R&D and be an advance in science and technology.

Construction companies have claimed R&D for developing new building systems and new building technologies.

R&D could be a new process rather than an invention.

It doesn’t have to have a patent but there could be advantages to having one, such as patent box tax relief.

steve@bicknells.net

How De-pooling Short Life Assets can reduce your tax 1

Bicknell Business Adviser, Uncategorized • Tags: , , , , , ,

In the Finance Bill 2011 the period over which expenditure on plant or machinery can be given “short life assets” (SLA) treatment was extend from 4 year to 8 years.

The change will have effect for expenditure incurred

• on or after 1 April 2011 for businesses within the charge to corporation tax (CT); and

• on or after 6 April 2011 for businesses within the charge to income tax.

If a business elects for plant or machinery to be treated as a short life asset, capital allowances are calculated individually on the asset until a “cut-off” point. This ensures that, if the asset is sold or scrapped before the cut-off point, the total allowances given over the period of ownership equal the actual net cost of the asset to the business.

An election will be beneficial if the asset depreciates faster than the rate at which capital allowances are given, and it is sold before the cut-off date.

Expenditure incurred on an asset given SLA treatment is allocated to a ‘single asset pool’ for the cut-off period. The current four-year cut-off period is four years from the end of the chargeable period in which the expenditure is incurred.

Writing-down allowances are given on the reducing-balance each year, currently at 18 per cent. If the item is scrapped or sold within a ‘four-year cut-off’ period, the remaining balance of expenditure in the pool is compared with the disposal proceeds. A further allowance, or charge, is made for the difference. This ensures that allowances given to this point match the actual net cost of the SLA.

If the Asset was placed in the Main Pool the tax relief would come through in future years through the WDA. So using the SLA will speed up Tax Allowances.

If the asset is not disposed of within the ‘four-year cut-off’ period, the remaining expenditure in the single asset pool is transferred to the main capital allowances pool, where writing-down allowances will continue to be available in the normal way.

The exceptions to SLA treatment are listed in section 84 CAA 2001 and include most cars and all expenditure on ‘long-life assets’ (assets with a useful economic life of at least 25-years) and ‘integral features’ of a building or structure.

A SLA election must be made for corporation tax within two years of the end of the relevant chargeable period in which the expenditure is incurred. For income tax the time limit is normally the anniversary of the 31 January following the tax year in which the end of the relevant chargeable period occurs.

Assets that cannot be treated as SLAs are:

  • assets that were provided for some other purpose including leasing under a long funding lease before being brought into use for a qualifying activity CA23030;
  • assets received as a gift CA23040;
  • assets used for special leasing CA20040;
  • cars apart from cars hired out to people in receipt of certain disability allowances CA23510;
  • long life assets CA23700;
  • special rate expenditure assets CA20150;
  • assets provided for leasing except:
    • those used in the designated period for a qualifying purpose and for no other purpose; and
    • cars provided for disabled people in receipt of certain allowances;
  • assets leased overseas that qualify for WDAs at the 10% rate CA24200;
  • assets leased to two or more persons jointly where at least one lessee is a non- resident who does not use the asset exclusively for earning profits chargeable to tax and the leasing is not protected leasing CA24400;
  • ships CA25000;
  • assets used partly for a qualifying activity and partly for other purposes CA27000;
  • assets that receive a partial depreciation subsidy CA27100.

http://www.hmrc.gov.uk/manuals/camanual/CA23620.htm

steve@bicknells.net

Trade away your Overdrawn Directors Loan 2

Accounting, Bartercard, Bicknell Business Adviser • Tags: , , , ,

For those who haven’t heard of Bartercard.

Bartercard is the World’s largest business to business Trade Exchange servicing over 75,000 trading members across 6 countries with the World’s largest computerised Barter Network

http://www.bartercard.co.uk/about

Basically members exchange goods and services instead of cash and a Trade Pound has the same value as a Pound Sterling.

Bartercard is reported in your accounts in the same way as a Bank Account.

My Bartercard contacts tell me that currently one of the most popular ways to use Bartercard is to repay Directors Loans, the Director sells or auctions personal items, selling via Bartercard is easy and members are always keen to buy, they then use the Trade Pounds to repay the Directors Loan.

I know you might say why don’t you just sell for cash, which you could do, but because some products such as electrical items are in short supply in Bartercard, on the auction site (much like EBay) they will almost certainly be sold for a premium price.

Once you have paid off your directors loan you may be eligible for a Corporation Tax refund. http://stevejbicknell.com/2012/01/02/pay-off-your-directors-loan-and-reclaim-corporation-tax/

steve@bicknells.net

 

Associates don’t have to be taxing Reply

Accounting, Bicknell Business Adviser • Tags: , , ,

The small companies rate of Corporation Tax is 20% compared to main rate of 24% (2012/13). The small company rate is applied if your profits are below £300k, however, if you have associate companies, the £300k is spread between them equally.

For the purposes of CTA10/S25 (4), formerly ICTA88/S13 (4), a company is an associated company of another at a given time if at that time:

  • one of the companies has control of the other, or
  • both of the companies are under the control of the same person or persons

http://www.hmrc.gov.uk/manuals/ctmanual/CTM03710.htm

But what some business forget is that if you have a subsidiary that has become dormant it stops being associated

an associated company which has not carried on any trade or business at any time during the accounting period is disregarded – if it is an associated company for part only of the accounting period, the rule applies to any time during that part.

http://www.hmrc.gov.uk/manuals/ctmanual/ctm03580.htm

steve@bicknells.net

Tax Break – Self Employed to your own Company Reply

Accounting, Bicknell Business Adviser • Tags: , , , , , , ,

When you are Self Employed your pay tax in advance in January and July, but Companies pay tax 9 months after their financial year end.

So if you formed a Company and it started trading in April 2011, its year would end 31st March  2012 and Corporation Tax would be due in December 2012.

As a director of your own company you will be paid as an employee (PAYE) and get paid dividends as a Shareholder. Dividends are paid out of taxed profits.

What this means is that a Director taking a minimal salary, will probably have a tax break of 12 plus 9 = 21 Months.

In addition the company will buy the assets of the sole trader and it may be possible to include a value for goodwill.

steve@bicknells.net

Group Corporation Tax – why not have a simplied arrangement? Reply

Accounting, Bicknell Business Adviser, Free Things • Tags: , , , ,

Its often worth having a Tax Group even if you don’t have Group Accounts ie you have multiple businesses under common control but that are not directly owned subsidiaries. The reason for this is to offset profits and losses to reduce the total tax payment.

Generally this means completing a special extra return, the CT600C, unfortunately, this form is not available from HMRC to file on line.

There is a solution regulation 6 SI199/2975 (CTM97690) allows you to write to HMRC and explain which companies make up the group and ask for a simplified arrangement – meaning HMRC will automatically net off the returns with out the need for CT600C returns.

By doing this you can file the CT600′s on line for free with HMRC.

steve@bicknells.net

 

Corporation Tax online – its free, its iXBRL complaint and you can file accounts too Reply

Accounting, Bicknell Business Adviser, Free Things • Tags: , , , ,

I recently registered to use the HMRC Corporation Tax online services and my activation codes arrived today, so far I am impressed.

Obviously you need to know how to correctly do your Tax Computations first, nothing can remove the complicated tax calculations for Capital Allowances, Loans to Participators, Small Company Relief etc, you need skill for that part. But from reading the manual it seems that you can enter your accounts, computations and complete the CT600 and file it without needing to spend a fortune on specialist software to produce the iXBRL tagging now required.

Let’s see if I am still impressed when I try to enter the information.

steve@bicknells.net