KEY TAX ASPECTS OF RAISING FINANCEINVEST PROFIT TAX SAVINGS
Nicholas Charles FCCA Qualified accountant who joined C Charles & Co in September 2003. Recognised as a Fellow Chartered Certified Accountant in May 2009 Property tax expert and a consultant on niche tax strategies and planning for high net worth clients Owns and runs a multi million pound property portfolio Chairman of Penny Power Limited and FD of Bank to The Future. Property consultant and have brokered commercial property deals worth more than £4m
AGENDATo keep you awake!To make you aware of the key areas of tax that can saveyou and your businesses money.EXIT: Entrepreneurs ReliefSEIS – Seed Enterprise Investment SchemeEIS – Enterprise Investment SchemeSEIS vs. EISQ&A
Entrepreneurs’ Relief• 10% Tax on gains from sale of up to £10m!• Only applicable to individuals and trusts NOT TO COMPANIES• Lifetime allowance• Applies to part disposal of business also Vendor must sell “part of his business” HMRC will assess to see if the purchaser can operate part purchase as a going concern No ER on disposal of business assets – unless they can be operated as a business in the own right
ENTREPRENEURS RELIEF - Conditions TYPE OF BUSINESS ASSET CONDITIONSThe whole or part of business Owned by the disposer throughout a period of at least 1 yr ending with the date of disposal (or cessation of trade).An asset used for the purpose of a 1. The business was owned by the disposerbusiness at the time the trade ceased for a time period as indicated above AND 2. The asset is disposed of on or within 3 yrs after the date of cessationShares or securities in a trading 1. The seller owns at least 5% of thecompany which continues to trade company’s voting share capital ANDafter the disposal 2. The seller was an officer or employee of the company.Shares or securities in a trading As above BUTcompany which ceases to trade. • The disposal must take place on or within 3 years after the date of cessation.
ER – Some Examples SCENARIO ER Relief?1. Trading partnership sells it’s car park to a property NO developer2. Sole trader food business sells one supplier lines YES – after including customer database, goodwill and trademarks court case3. Sale of a building that was rented to your personal company and your business continues to rent out the NO property4. Sale of a building whilst disposing of a qualifying YES – shareholding in your company. provided you were charging rent at MV
SEIS: SEED ENTERPRISE INVESTMENT SCHEME New legislation – introduced on 6 April 2012 Similar to EIS but targets early stage companies carrying on a NEW business in a qualifying trade. In Year 1: 6/4/2012 – 5/04/2013 any gains realised from the disposal of assets that are invested through SEIS will be EXEMPT CGT! Tax Relief 50% or even 78% making the investment more attractive for investors.
SEIS – Investor Summary Investor gets 50% income tax relief but NO tax rebate Maximum of £100,000 of investment Shares must be subscribed for (i.e. new shares) and paid up in full in cash. Beware of newly registered companies In YEAR 1 only can reinvest a chargeable gain incurred in 2012/13 into a SEIS qualifying company. Subject to maximum investors gain will be exempt (saving 28%) AND will also qualify for 50% income tax relief! Investor cannot be an employee but can be a director! Shares also exempt from CGT if held for 3 qualifying years
SEIS – Investor Summary 2 Investor cannot own > 30% of the company shares. 30% includes relatives and business partners but not brothers and sisters Shares MUST be full risk ordinary shares – preference shares will NOT qualify. HMRC will not issue a compliance certificate until Finance Act has been given Royal Assent!Example 2012/13 £ £Matt’s Chargeable gains subject to 28% CGT 60,000Matt’s income tax liability 97,000Matt invests £60,000 into SEIS shares @ 50% 30,000Net tax liability 47,000TOTAL TAX SAVED: (60,000 x 28%) + 30,000 46,800ACTUAL COST OF £60,000 INVESTMENT 13,200
SEIS – COMPANY SUMMARYAT THE TIME SHARES ARE ISSUED:• Must not have > 25 employees• Gross assets must be < £200,000 – this applies to group assets if company belongs to a group.• NO EIS or VCT investment must have been made by issuing company• Any trade carried on by company must be < 2 years old at the date of issue of shares• Maximum of £150,000 can be raisedFor full details please visit: http:// www.hmrc.gov.uk/seedeis/index.htm
SEIS – Commercial ConsiderationsIf you are starting a new “trade” or company you MUSTconsider SEIS if looking to raise money.Make sure company qualifies!SEIS company investments are potentially 78% cheaperCombine SEIS with EIS or VCT. However you must spend70% of monies raised by the SEIS before you can do soTherefore raise £150,000 with SEIS and then look to raiseadditional finance via either EIS or VCT.
EIS – Enterprise Investment SchemeINVESTOR: Must invest a minimum £500 Income tax relief = 30% of the cost of shares Max tax relief = £150,000 on a £500,000 investment Can carry back relief to preceding tax year If qualifying shares are held for > 3 years then any gain is free from CGT If shares are NOT held for 3 years then Income tax relief is withdrawn. Loss relief is available if shares are sold at a loss Can defer Capital Gains Tax if gain is invested in shares of an EIS qualifying company – NO LIMIT!
EIS – Connection to CompanyAn investor is “connected” if 2 years before share issue or 3 years after share issue:1. Investor controls > 30% of the share capital2. Shareholdings held by “associates” are also taken into account.3. Investor is or becomes a partner, director or employee of the company. This does NOT apply to Business Angels.EXAMPLE: Mr X purchases 10% of EIS share capital in Yr 1 and then 21% in Yr 2. There will be no relief in Yr 2 AND he will have to repay the Yr 1 tax relief claimed.
EIS – Connection to CompanyITEM Unconnected ConnectedIncome Tax Relief on subscriptions Yes NoCapital Gains Exemption on disposal of Yes Noshares eligible for income tax reliefLoss Relief on disposal of shares disposed Yes Yesof at a lossCapital Gains Deferral (Unlimited) Yes Yes
EIS – Company Considerations Company can raise £2m in any Non Trading Activities 12 month period Dealings in land Small Company Enterprise Centre decides if company Financial activities incl. banking qualifies for EIS relief. Leasing assets Qualifying companies will have to supply form EIS3 to investors Property Development so that they can claim relief. Operating or managing hotels Money MUST be used within 2 yrs of share issue for the Operating nursing homes purposes of trade or R&D Legal or accountancy services Company cannot be involved in “non trading activities” Excluded activities must not be > 20% of the companies activities.
SEIS vs. EISSTATEMENT SEIS EISMaximum amount that can be raised? £150,000 £2mAmount of tax Relief in 2012/13? 50%/78% 30%Can you carry back relief? Yes but not Yes in 12/13What happens if you reinvest capital gains Exempt – Deferral – up to limit No LimitCGT on sale of shares if held > 3 years No NoMaximum % of voting shares held including 30% 30%associates?
FURTHER INFORMATIONwww.charlesfcca.com 020 7263 3295EIS: Small Company Enterprise Centre (Admin team) South Wing 1st Floor, Fitzroy House Castle Meadow Road Nottingham NG2 1BD 0115 974 1250
WITH ACTION COMES RESULTSLEARN TO ASK THE RIGHT QUESTIONS TO YOUR ADVISORS1. Does your company qualify for SEIS or EIS?2. Are you looking to sell whole or part of your business? If so will your gain qualify for ER?3. Is your business set up in the most tax efficient way?4. Do you have any overseas operations and if so do you need to setup an offshore company?5. What tax strategies/planning are available for your business TODAY?