Tax Opportunities for Entrepreneurs

What happens when entrepreneurs & great tax advice come together? Opportunities are maximised. That’s what!

Whether establishing, growing or selling a business it is crucial that entrepreneurs seek the tax advice they need to make informed decisions. This of course includes claiming some or all of the tax reliefs that are available

These include:

  • Structuring investments under the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). It’s younger sister, SEIS, offers more generous reliefs to individuals investing in smaller, potentially riskier early stage companies who may otherwise experience barriers to raising external finance.
  • EIS is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. Subject to specific conditions being met, individuals are able to obtain income tax and capital gains tax reliefs on investments in newly issued shares in unquoted companies.

Issuing tax efficient share options to employees

The Enterprise Management Incentive (EMI) is a share scheme designed to help small, ambitious companies retain the right talent to grow. By rewarding prospective and existing staff with tax advantaged share options this offers employees a reason to work for you instead of a large established company with deep pockets.

Consideration of Research and Development (R&D) claims

Broadly speaking, your company or organisation can claim up to an additional 130% on qualifying R&D costs if it undertook an R&D project that seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of an uncertainty. The definition of research and development is much wider than many people think. You could therefore be eligible for enhanced tax deduction and not realise it!

Understanding the Patent Box regime

The new regime came into effect on 1 April 2013, and presents companies that are holding patents and using them in their business with the opportunity to significantly reduce their tax burden. Under the new regime profits from qualifying patent interests will be taxed at rates as low as 10% delivering cash tax and effective tax rate benefits. Companies should take action now to understand how to benefit from the regime and what business changes might be advantageous.

Choosing your investment vehicle

For a new or growing business the choice of investment vehicle (limited company, LLP, partnership, sole trader) is important from a commercial and tax perspective. As the business changes and grows the choice of investment vehicle should be reviewed, as what suits he business at one particular stage may not necessarily be appropriate for the life of the business.

Utilising losses

No matter what investment vehicle you are trading via awareness of the various loss reliefs that are available is key. Special rules apply in relation to the early years of trade together with the year of cessation.

Claiming Entrepreneurs’ Relief

Where a claim is made on qualifying business assets the first £10 million of capital gains are taxed at the reduced rate of 10% rather than 28%. This can offer significant tax savings to individuals and certain trustees.

Our overriding message – Don’t do it alone!

Entrepreneurs by their very nature tend to be do-it-yourselfers. They take pride in their ability to micro manage every aspect of their business. However, tax is one of those areas where you should definitely seek professional help.

Melissa Fabris is a Chartered Tax Advisor with Harland Accountants

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