R&D Legislation Changes

HMRC have now outlined their proposed changes to the R&D scheme as part of the draft legislation published by HMRC on L-Day (20 July 2022).

HMRC have stated that their primary aims with the reforms are to:

1. Expand the scope of qualifying expenditure (to further support cutting edge R&D)
2. Refocus the reliefs towards innovation in the UK
3. Tackle abuse of the R&D scheme

All the proposed reforms will come into effect for accounting periods starting on or after 1^st April 2023.

Introduction

With the UK’s two R&D schemes quickly becoming some of the country’s most successful Corporate Tax Incentives, HMRC continue to focus on evolving the scheme to ensure it remains competitive in a global market, beneficial for the UK economy and secure against abuse and misuse.

Extending qualifying expenditure

HMRC have announced that they will be expanding the scope of qualifying expenditure to encompass the cost of acquiring datasets and cloud computing costs.

It is therefore our understanding that this will include a wide variety of new costs for software-based R&D, potentially, most importantly the ever-increasing cost of hosting and on-demand cloud computing platforms, such as Amazon Web Services (AWS).

HMRC have stated that it is their belief that this change will further support cutting edge R&D to be undertaken in the UK.

It was also announced that going forwards any R&D into areas of pure mathematics will be allowable, these have previously been excluded by HMRC, but this exclusion will now be removed.

Refocusing the reliefs towards innovation in the UK

The Government have been quite vocal on their intent to refocus the ‘run off’ benefits of R&D back into the UK. They have taken a significant step in achieving this by limiting Externally Provided Worker (EPW) costs to only included EPWs paid via a UK payroll, this will affect both the SME and RDEC R&D scheme.

A similar restriction has been imposed for allowable subcontractors and contributions to independent research. Going forward these activities will only be allowable, where they are undertaken in the UK. 

There are certain narrow exceptions, where the subcontracted R&D can be undertaken outside of the UK. However, these will be limited to situations where there are factors that are not present in the UK, “such as geography, environment, population or other conditions that are not present in the UK are required for research”, examples given include, ocean research and clinical trials. HMRC goes on to state the this is not an exhaustive list but states that “exemptions will not include cost, or workforce availability”.

Tackling abuse and improving compliance

This has been a key focus of HMRC over the past year and the industry has seen a dramatic increase in compliance notices being issued by HMRC. It is therefore not surprising to see HMRC adjusting the legislation to improve compliance by taxpayers and their agents.

These changes include the requirement for all R&D claims to be made digitally (exempt for those companies exempt from the requirement to deliver a Company Tax Return online). These digital submissions will require a breakdown of costs by qualifying category and a brief description of the R&D activities undertaken. Each R&D submission will also have to be endorsed by a named senior officer of the company and if an agent was used, their details will also need to be supplied.

HMRC will also require companies to pre-notify their intent to make an R&D claim, within 6 months of the end of the relevant accounting period. However, if the company has made an R&D claim in any of the three preceding periods they will be ‘grandfathered’ in and will not need to pre-notify HMRC.

Addressing anomalies and unforeseen consequences 

HMRC have also announced several additional measures to address anomalies and unforeseen consequences, thereby ensuring that the R&D scheme continues to operate as intended. The most notable of which allows for the new employer’s health and social care levy, to be treated in line with national insurance contributions and therefore allowable under the R&D scheme.

In summary the following will come into effect for all accounting periods starting on or after 1^st April 2023: 

• Eligible expenditure will include cloud computing costs 
• Pure maths will be an allowable area of R&D
• Only EPWs on UK payroll will be allowable
• Subcontracted R&D will be limited to work undertaken in the UK – with some narrow exceptions
• Payments to Qualifying Bodies (e.g. universities or health bodies) to undertake independent research will only qualify if the activities are undertaken in the UK
• R&D claims will need to be made digitally going forward – exempt for those companies exempt from the requirement to deliver a Company Tax Return online
• R&D submissions will need to include
  • A breakdown of costs across the qualifying categories 
  • A brief description of the R&D activities
  • An endorsement from a named senior officer of the company
  • Details of any R&D agent who has advised on the claim

If you have any questions regarding the upcoming changes, please contact us on:

(E)enquiries@advaloremroup.uk or (T) 01908 219100 (W) advaloremgroup.uk

New VAT Penalties and Interest Charges

HMRC are introducing new VAT penalties and interest charges which will apply to everyone who submits a VAT Return from 1 January 2023. Financial penalties can arise if you summit your VAT Return late, AND if you make a late payment. 

Who is affected?

The changes introduced by HMRC will affect everyone who submits a VAT Return for accounting periods starting on or after 1^st January 2023. 

If your VAT Return is nil or subject to a repayment of VAT by HMRC, and is filed late, you will be subject to penalty points and financial penalties. 

What if my VAT Return is submitted late? 

The penalties for late submissions will work on a points-based system. 

Each VAT Return you submit late; you will receive one penalty point. If you reach the penalty point threshold, you will receive a £200 penalty in the first instance. You will then receive a further £200 penalty for each subsequent late submission. 

The penalty point thresholds vary dependent on how frequently you submit your VAT Returns. 

In order to reset your points back to zero, you will need to:

• Ensure you file your returns on or before your VAT submission due date, for your “period of compliance:” Your period of compliance is dependent on your submission frequency and outlined in the table above. 

• Make sure all outstanding returns for the previous 2 years have been filed with HMRC.

What if I miss a VAT payment? 

The sooner you make payment after your missed due date, the lower your penalty rate will be. 

A grace period

To allow time to get used to the changes, HMRC will not be charging the first late payment penalty for the first year from 1^st January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date. 

How will late payment interest be charged?

From 1^st January 2023, late payment interest will be charged from the day your payment is overdue to the day your payment is made in full. 

Late payment interest is calculated at the Bank of England base rate plus 2.5%. 

Introduction of repayment interest  

The repayment supplement will be withdrawn from 1 January 2023.

If your accounting period starts on or after 1^st January 2023, HMRC will pay you repayment interest on any VAT that you are owed. 

The repayment interest will be calculated from the day after the due date or the date of submission (whichever is later) and until HMRC pays you the repayment VAT amount in full. 

Repayment interest is calculated as the Bank of England base rate minus 1%, with a lower limit of 0.5%. 

Essentially HMRC are bringing VAT penalties and interest payments more in line with their other taxation penalties and interest payments. If you have any questions regarding the upcoming changes, please contact us on:

(E)enquiries@advaloremroup.uk or (T) 01908 219100 (W) advaloremgroup.uk

Why is using a regulated accountancy practice so important?

Regardless of whether a person has specific experience, technical skills, certifications, or professional indemnity insurance, it is possible for anyone to start an accounting firm and call themselves an accountant. This is scary a thought for business owners who have engaged with an unregulated accountant. The risk of getting incorrect advice is significant. 

Finding the right accountancy practice 

It is advisable when looking for an accountant that you ensure they are a regulated. The main regulatory bodies are The Association of Chartered Certified Accountants (ACCA) and The Institute of Chartered Accountants in England and Wales (ICAEW). 

It is also important to choose a professional you can trust. You want to know that they have the training, expertise, and qualifications to provide high-quality advice and services. If you engage an unqualified or unregulated accountant to manage your finances or taxes, you may have little recourse if you are unhappy with the quality of their advice, their behaviour, or their service standards. Practices who are regulated by either the ICAEW or ACCA on the other hand, are subject to extensive, proactive, and cyclical monitoring of their conduct and performance.

Professional services you can trust

Individuals and businesses can benefit from working with a regulated firm, by being assured they are receiving expert advice and services in areas such as audit, cloud accountancy, payroll, R&D tax credits and tax advisory. To become ACCA/ICAEW regulated, it is an extensive process; training is required to develop the necessary accountancy skills; skills that must be kept up to date and relevant with changing government rules via Continuous Professional Development (CPD) 

Get the reassurance you deserve 

These high professional standards and protections provide invaluable peace of mind, but they aren’t the only reason to choose a regulated accountant. For more than 100 years, the ACCA have been a trailblazer in the evolution of the accountancy profession, and it continues to be at the forefront – both as a professional organisation and as a regulator. At Ad Valorem you can be reassured that our practice is ACCA regulated, you can check this by going to the ACCA website and searching our name here. 

Do you know if your accountant is regulated? 

Contact us today if you have any questions regarding the importance of working with a regulated accountancy firm. 

(E)enquiries@advaloremroup.uk or (T) 01908 219100 (W) advaloremgroup.uk

Trust Registration Service

When the Trust Registration Service (TRS) was first set up in 2017, only trusts that were liable to pay tax were required to register.

New rules were introduced on 6 October 2020 which mean that non-taxable UK trusts are also now required to register with HMRC, regardless of whether the trust is liable to pay any tax. 

The deadline for this registration is 1 September 2022. This deadline also applies even if the trust has since been closed.

Non-taxable trusts that are created from 6 October 2020 will need to register with HMRC by the later of 90 days of creation or by 1 September 2022.

Generally speaking, trusts that need to be registered are:

• All UK express trusts (unless they are specifically excluded, see below)
• Non-UK express trusts that acquire land or property in the UK and have at least one trustee resident in the UK

Certain trusts are excluded and are not required to register unless they are liable to pay UK tax, these include but are not limited to:

• Trust required to open a bank account for a child or vulnerable person
• Charitable trusts
• Trusts for bereaved minors or adults aged 18-25
• Will trusts which are wound up within two years of death
• Trusts of life policies paying out on death, terminal illness or disability
• Trust imposed by courts or created by legislation
• Co-ownership trusts

Information held on the register about the people associated with a trust (taxable or not) also have to be kept up to date to comply with anti-money laundering regulations. Any changes have to be reported within 90 days.

If you think that you may be affected by these changes, please get in touch and we will be happy to assist with your reporting obligations.

To find out more about the Trust Registration Service (TRS), please contact us using the details below.

Written By: Justine Whyatt

(E)enquiries@advaloremroup.uk or (T) 01908 219100 (W) advaloremgroup.uk

EIS & SEIS Funding

What is SEIS Funding and how does it work?

The Enterprise Investment Scheme (EIS) and The Seed Enterprise Investment Scheme (SEIS) are schemes which help companies to raise money to help grow their business by providing tax relief to individuals who invest. These schemes are known as tax- advantaged investments. 

Companies can raise a lifetime maximum of up to £12 million from tax-advantaged investments, subject to a 12-month limit of £5 million. The lifetime maximum that can be raised through SEIS funding is £150,000. Investors will be able to obtain Income Tax and Capital Gains Tax relief on their investments if they are eligible. 

Is my business eligible?

There are several requirements for EIS and SEIS funding. Such as:

EIS Funding

• The Company is required to to be an independent company which trades in the UK. 
• Must have of less than £15 million before the share issue and £16 million immediately afterwards.
• The company must also have less than 250 full time employees. 

SEIS Funding

• The Company is required to be an independent company which trades in the UK. 
• Must have assets of less than £200,000 
• The company must also have less than 25 full time employees. 

Certain trades are specifically excluded from EIS and SEIS such as property development, hotels, farming, market gardening and legal or accountancy services. Qualifying companies must also have a permanent establishment in the UK and not be listed on a recognised stock exchange. Your company must have carried on the trade for which the money was raised for at least 4 months in order for an investor to be eligible for EIS relief. 

Common questions asked about EIS & SEIS Funding

• Am I eligible for EIS/SEIS? 

Not all companies are eligible to register for EIS/SEIS status. There are a number of qualifying conditions that your company must satisfy, including that you are an independent company trading in the UK, and restrictions on your asset values prior to undertaking investment. There are also a number of criteria that needs to be met by investors to receive their tax relief. 

• Why should I undertake EIS/SEIS Funding? 

EIS/SEIS funding is a great way to attract investors to your company. It is win-win for your company and your investors, as your company will receive an injection of funds and your investor could be eligible for tax relief, which isn’t usually available for standard investments. 

• How much funding can be raised? 

Your company will be able to raise up to £12 million from tax-advantaged investments over its lifetime, subject to a 12-month limit of £5 million. For SEIS there is a lifetime maximum of £150,000 that can be raised for each company. 

• How much time will it take to set up? 

There are several steps that you will have to follow to acquire your EIS/SEIS approval, depending on the requirements it can take between 2 – 6 months to get approval from HMRC from start to finish. 

• Will the investors have control over my company? 

Not if you do not want them to. 

How can Ad Valorem help with obtaining EIS/SEIS Funding?

• We can help you with every aspect of registering your company for EIS/SEIS funding. 
• We can check your company’s eligibility and apply for Advance Assurance which ensures that your investors will receive the tax reliefs if they are eligible. 
• We will also ensure that the correct compliance forms are submitted to HMRC at the right time to make sure the process is completed as soon as possible. Why should I use Ad Valorem’s services instead of doing it myself? 

If you would like any further information about EIS or SEIS, please don’t hesitate to contact us to arrange a consultation with our tax specialists. Call us on 01908 219100 or drop us an email on enquiries@advaloremgroup.uk. 

Options for closing your company: Creditor Voluntary Liquidation or Strike Off?

Winding Up Petitions

Restrictions on issuing Winding Up Petitions (WUPs) to UK companies formed part of the Government’s temporary measures aimed at helping businesses weather the pandemic. These measures have gradually been phased out and as of 1st April 2022, Winding Up Petitions can again be issued by creditors.

Creditor Voluntary Liquidation, Member’s Voluntary Liquidation, or Voluntary Strike Off?

For businesses facing WUPs issued against them for HMRC debt, a Bounce Back Loan, or any other debts it cannot settle, what options are available? Can business owners opt for Creditor Voluntary Liquidation (CVL) or Voluntarily Strike Off their company? Is a Member’s Voluntary Liquidation still a possibility? And what is the difference between these options?

What are the tax implications for informal Winding Up and Liquidation?

Makayla Combes, our Head of Tax and Business Consultancy explains the tax implications for informal Winding Up and Liquidation.

Informal Winding Up:

A distribution by a company is usually an income distribution. However, when a company makes a distribution following an application to be struck off, the distribution may be treated as capital. 

If the balance of the assets in the company are £25,000 or under then distributions up to £25,000 will be treated as a capital distribution for shareholders. Capital distributions are taxed at the Capital Gains Tax rates of 10% for basic rate taxpayers and 20% for higher rate taxpayers. If certain criteria are met then the Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) rates may apply and the whole distribution could be taxed at 10%.

If the balance of the assets in the company are over £25,000 then the distribution will be treated as income. Income distributions will be treated as a dividend payment and will be taxed at the income rates for dividends currently 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional taxpayers.

Despite the additional cost of a Formal Liquidation, it is often the most tax efficient route. 

Liquidation:

If a company is formerly liquidated, Members Voluntary Liquidation, then the distribution will be treated as capital (unless it is caught by anti-avoidance legislation) and tax is payable at the Capital Gains Tax rates described above.

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk