Pre Budget UpdateImplications 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

2012 2013 2014

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 2012-13 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 (26.25 2012/30%)

- 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 2012.

• 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