Assessing Tax Credit


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Find out more about capital grants for business investment and learn how it is possible to let the government finance your business.

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Assessing Tax Credit

  1. 1. BARNES ROFFE LLP <ul><li>LET THE GOVERNMENT FINANCE YOUR BUSINESS </li></ul><ul><li>By </li></ul><ul><li>Paul Hughes </li></ul><ul><li>And </li></ul><ul><li>Shen Yap </li></ul>
  2. 2. BARNES ROFFE LLP <ul><li>Grant Funding in the UK </li></ul><ul><li>By </li></ul><ul><li>Paul Hughes </li></ul>
  3. 3. BARNES ROFFE LLP <ul><li>English Regions </li></ul><ul><li>Capital Grants for Business Investment (GBI) </li></ul><ul><li>Administered by Regional Development Agencies: </li></ul><ul><li>Advantage West Midlands (AWM) </li></ul><ul><li>East Midlands Development Agency (EMDA) </li></ul><ul><li>East of England Development Agency (EEDA) </li></ul><ul><li>London Development Agency (LDA) </li></ul><ul><li>Northwest Development Agency (NWDA) </li></ul><ul><li>One NorthEast (ONE) </li></ul><ul><li>South East England Development Agency (SEEDA) </li></ul><ul><li>South West Regional Development Agency (SWRDA) </li></ul><ul><li>Yorkshire Forward (YF) </li></ul>
  4. 4. BARNES ROFFE LLP <ul><li>GBI - Eligibility Criteria </li></ul><ul><li>It is located in an Assisted Area? </li></ul><ul><li>The project requires grant to make it happen, or without grant the project would only go ahead on a smaller scale, or within a longer timeframe. </li></ul><ul><li>It involves capital expenditure. </li></ul><ul><li>It creates new jobs or safeguards existing ones which would otherwise be at risk. </li></ul><ul><li>A majority of the jobs created or safeguarded require qualifications of level 2 NVQ (or equivalent) or above. </li></ul>
  5. 5. BARNES ROFFE LLP <ul><li>GBI - Eligibility Criteria (cont’d) </li></ul><ul><li>It will secure increased productivity. </li></ul><ul><li>The business is viable and can become self sustaining within a reasonable timeframe. </li></ul><ul><li>It generates regional and national benefits. </li></ul><ul><li>The bulk of the finance for the project will come from private sources </li></ul>
  6. 6. BARNES ROFFE LLP <ul><li>GBI - Who can get grants </li></ul><ul><li>Assisted Areas (Tier 1 & 2) </li></ul><ul><li>In Tier 1 and 2 areas grant is available to any size of business, subject to meeting the eligibility criteria. </li></ul><ul><li>Non-assisted Areas (Tier 3) </li></ul><ul><li>In Tier 3 Areas GBI is only available to SMEs. </li></ul>Large Medium Small Tier 1 and 2 10-15% 20-25% 30-35% Tier 3 n/a 10% 20%
  7. 7. BARNES ROFFE LLP <ul><li>GBI - SME Definition </li></ul>
  8. 8. BARNES ROFFE LLP <ul><li>GBI - Eligible Expenditure </li></ul><ul><li>The cost of the tangible or intangible assets directly relating to the investment project; or </li></ul><ul><li>The wage and salary costs of the employees who fill the jobs created, calculated over a two year period; or </li></ul><ul><li>In some areas, a combination of both . </li></ul>
  9. 9. BARNES ROFFE LLP <ul><li>GBI - How much? </li></ul><ul><li>The amount of assistance which may be available ranges from £10,000 to £1,999,999.  </li></ul><ul><li>Applications for grants for £2 million and above are handled directly  the Department for Business, Enterprise and Regulatory Reform (BERR) in London. </li></ul>
  10. 10. BARNES ROFFE LLP <ul><li>GBI - How do you apply? </li></ul><ul><li>Application Forms </li></ul><ul><li>Business Plan </li></ul><ul><li>Supporting documentation </li></ul><ul><li>Accounts </li></ul><ul><li>Evidence of funding </li></ul>
  11. 11. BARNES ROFFE LLP <ul><li>Grants for research (GRD) </li></ul><ul><li>Grants for Research and Development aim to support research or development work on technologically innovative products or processes. This is achieved by encouraging businesses to carry out R&D activity that they might not otherwise undertake and by helping to lever in other private finance. </li></ul><ul><li>Micro Project : Small scale projects lasting up to 12 months in Micro enterprises (those having less than 10 employees and either less than €2m sales or less than €2m of asset value). Grants are  45 per cent of actual project costs and the maximum grant is £20,000. </li></ul>
  12. 12. BARNES ROFFE LLP <ul><li>Grants for research (GRD) (Cont’d) </li></ul><ul><li>Research Project : To produce new scientific or technical knowledge, projects lasting 6-18 months in Micro or Small businesses (those having less than 50 employees and either less than €10m sales or less than €10m of asset value). Grants are 60 per cent of project costs. The minimum grant is £20,000 and the maximum £100,000. </li></ul><ul><li>Development Project : To develop a pre-production product or process prototype, projects lasting 6-36 months in an SME (those having less than 250 employees and either less than €50m sales or less than €43m of asset value). Grants are 35 per cent of project costs, minimum grant is £20,000 and the maximum £250,000. </li></ul><ul><li>Exceptional Development Project : As for Development Projects but with justifiably higher costs and which may be of strategic importance to the UK. Minimum grant is £250,000 and the maximum £500,000 , the intervention rate is negotiable up to 35 per cent of project costs. </li></ul>
  13. 13. BARNES ROFFE LLP <ul><li>A new approach for farms & rural cases </li></ul><ul><li>The Rural Development Programme for England (RDPE) is a funding scheme for land based businesses (farmers, growers, foresters, and primary processors), rural tourism organisations and other small rural businesses.  </li></ul><ul><li>The programme which runs until 2013, is funded jointly by the EU through the European Agricultural Fund for Rural Development (EAFRD) and the UK Government.  </li></ul><ul><li>The RDPE will be delivered through a number of activities including Small Capital Grant Schemes, Strategic Investment Grants and Action Plans. </li></ul><ul><li>Delivered through Regional Development Agencies. </li></ul>
  14. 14. BARNES ROFFE LLP <ul><li>EU Grants </li></ul><ul><li>Co-financing Grants </li></ul><ul><li>Indirect via UK Agencies </li></ul>
  15. 15. BARNES ROFFE LLP <ul><li>Funding for SMEs </li></ul><ul><li>By </li></ul><ul><li>ShenYap </li></ul>
  16. 16. BARNES ROFFE LLP <ul><li>Funding for SMEs </li></ul><ul><li>Enterprise Finance Guarantee </li></ul><ul><li>Working Capital Scheme </li></ul><ul><li>Capital for Enterprise Fund </li></ul><ul><li>Enterprise Capital Fund </li></ul><ul><li>Regional Loan Transition Fund </li></ul>
  17. 17. BARNES ROFFE LLP <ul><li>Enterprise Finance Guarantee (“EFG”) </li></ul><ul><li>New initiative, much wider than Small Firms Loan Guarantee (“SFLG”) </li></ul><ul><li>Government to guarantee (or underwrite) 75% of loan </li></ul><ul><li>Loans from £1k up to £1m </li></ul><ul><li>Term loan of up to 10 years (repayment of capital and interest) </li></ul><ul><li>Premium of 2% p.a. payable (25% discount in 2009), on top of agreed fees and interest rates </li></ul><ul><li>Businesses with turnover up to £25m </li></ul><ul><li>Most sectors eligible, other than e.g. financial services, insurance, coal, public entities </li></ul>
  18. 18. BARNES ROFFE LLP <ul><li>Enterprise Finance Guarantee (“EFG”) (cont’d) </li></ul><ul><li>Suitable for viable businesses able to service debts </li></ul><ul><li>Not enough security to pledge to be able to get loan from bank </li></ul><ul><li>Convert overdraft into term loan </li></ul><ul><li>Refinancing loan which would otherwise be withdrawn </li></ul><ul><li>Business plan, cash flow projections, financial history, track record </li></ul><ul><li>Bank certifies that business is viable, and can service its debts </li></ul><ul><li>Bank’s credit team sanctions loan after due process then submits proposal to BERR </li></ul>
  19. 19. BARNES ROFFE LLP <ul><li>Working Capital Scheme (“WCS”) </li></ul><ul><li>Government to provide £10bn to support bank lending of £20bn </li></ul><ul><li>Businesses with turnover < £500m </li></ul><ul><li>Banks review their existing and new loan portfolio </li></ul><ul><li>Bank applies to Government/BERR </li></ul><ul><li>Government/BERR secure 50% of portfolio subject to eligibility and approval </li></ul><ul><li>Premium payable to BERR, based on risk profile </li></ul><ul><li>Premium likely to be passed borrower </li></ul><ul><li>RBS/Natwest agreement 31 March for £1bn </li></ul><ul><li>Scheme intended to increase liquidity </li></ul>
  20. 20. BARNES ROFFE LLP <ul><li>Capital for Enterprise Fund (“CFE”) </li></ul><ul><li>£75m equity fund with government and private sector funding </li></ul><ul><li>Companies convert debt to equity (i.e. sell a stake in your business) </li></ul><ul><li>Established businesses with annual turnover < £50m </li></ul><ul><li>Administered by Capital for Enterprise Limited (“CfEL”) </li></ul><ul><li>Investments of £250k to £2m </li></ul><ul><li>More expensive e.g. may command 30%-40% compound return to investors </li></ul><ul><li>Mainly to relieve ‘over-gearing’, to expand or sustain growth; not a rescue facility for struggling businesses </li></ul>
  21. 21. BARNES ROFFE LLP <ul><li>Enterprise Capital Funds (“ECF”) </li></ul><ul><li>Available since 2006 </li></ul><ul><li>Funding of up to £2m </li></ul><ul><li>‘ Equity gap’ concept </li></ul><ul><li>Funding mainly for business growth and capital purchases </li></ul><ul><li>Equity involved, therefore more expensive </li></ul><ul><li>Return on investment, profit sharing structures </li></ul><ul><li>Managed by CfEL </li></ul><ul><li>Contact CfEL or fund managers </li></ul>
  22. 22. BARNES ROFFE LLP <ul><li>Regional loan transition fund </li></ul><ul><li>Available to businesses outside Greater London only </li></ul><ul><li>Administered by Regional Development Agencies (RDAs) </li></ul><ul><li>Consult with local Business Link or RDA </li></ul>
  23. 23. BARNES ROFFE LLP <ul><li>Planning/Resources </li></ul><ul><li>Talk to your accountants </li></ul><ul><li>Plan ahead – anticipate, plan, act, review </li></ul><ul><li>Review finances, establish working capital and cash requirements </li></ul><ul><li>Prepare business plan, management information, budgets, projections/forecasts </li></ul><ul><li>Talk to bank, discuss options </li></ul>
  24. 24. BARNES ROFFE LLP <ul><li>Defer paying your tax </li></ul>
  25. 25. BARNES ROFFE LLP <ul><li>Enterprise Investment Scheme (EIS) </li></ul><ul><li>CGT deferral for investing in your own company </li></ul><ul><li>Subscription for shares </li></ul><ul><li>Qualifying Companies </li></ul><ul><li>Qualifying Trades </li></ul>
  26. 26. BARNES ROFFE LLP <ul><li>Enhances capital Allowances (Green Allowances) </li></ul><ul><li>100% First year allowance </li></ul><ul><li>Approved product </li></ul><ul><li>Energy Technologies </li></ul><ul><li>Water Technologies </li></ul><ul><li>Cash repayment if company is loss making </li></ul>
  27. 27. BARNES ROFFE LLP <ul><li>ECA Tax Credits </li></ul><ul><li>Payable credit for loss making companies resulting from capital expenditure on plant qualifying for ECA from 1 April 2008 </li></ul><ul><li>Credit is 19% of surrenderable loss subject to an upper limit of the greater of </li></ul><ul><li>(a) the total amount of the company’s PAYE and NIC liabilities for payment periods ending in the chargeable period </li></ul><ul><li>and </li></ul><ul><li>(b) £250,000 (approximately £1.3m loss surrendered) </li></ul>
  28. 28. BARNES ROFFE LLP <ul><li>Integral Features: Purchases post April 2008 </li></ul><ul><li>Even if S198 tax election for third party sales post April 2008 should be extra 5-15% of sale price for integral features </li></ul>
  29. 29. BARNES ROFFE LLP <ul><li>Research & Development Tax Credits </li></ul><ul><li>SME vs. Large company scheme </li></ul>Company can only claim for expenditure on R&D it carries out itself, unless it sub-contracts R&D in certain limited circumstances to certain entities (qualifying body or individual) Company can claim for expenditure on R&D it sub-contracts to other No payable credit Payable credit at £24 for every £100 of qualifying expenditure on R&D After 1 April 2008 130% rate of enhanced deduction After August 1 2008 175% rate of enhanced deduction Large Company Scheme SME Scheme
  30. 30. BARNES ROFFE LLP <ul><li>What are the benefits of making and R&D Claim? </li></ul><ul><li>Examples of claims: </li></ul><ul><li>For every £100,000 a company spends on qualifying R&D </li></ul><ul><li>expenditures: </li></ul>N/A £24,000 £24,000 Or (when company in loss position) Tax credit £8,400 £21,000 £15,750 Tax benefit/savings £30,000 £75,000 £75,000 Incremental amount deductible (up-lift) Large Co SME High SME low
  31. 31. BARNES ROFFE LLP <ul><li>What Qualifying Expenditures are Eligible? </li></ul><ul><li>SMEs </li></ul><ul><li>Staffing costs for R&D employees </li></ul><ul><li>Materials, water, fuel and power for R&D </li></ul><ul><li>Software directly used in the R&D </li></ul><ul><li>Subcontracting out R&D activities or paying an external staff provider for R&D </li></ul><ul><li>Unconnected 65% </li></ul><ul><li> Connected – cost to connected company </li></ul>
  32. 32. BARNES ROFFE LLP <ul><li>What Qualifying Expenditures are Eligible? </li></ul><ul><li>Large </li></ul><ul><li>Same as SMEs except generally contractors are not eligible </li></ul><ul><li>Can claim for contributions to independent research </li></ul>
  33. 33. BARNES ROFFE LLP <ul><li>Extended Loss Carry Back </li></ul><ul><li>Accounting periods ending during period from 24 November 2008 to 23 November 2009 </li></ul><ul><li>£50,000 of loss can be carried back 2/3 years </li></ul>
  34. 34. BARNES ROFFE LLP The End