Introducing Jon Connor: Our new R&D tax specialist

Research and Development (R&D) tax incentives have been around now for quite some time, but are you making the most of them? According to our newly appointed R&D Tax Credits Manager, Jon Connor, these benefits could give you “a competitive edge”.

Uncovering innovation from within a business can often be complex. It may be buried within different areas of your organisation or even outsourced. Whether you’re a recruitment agency designing a new app or a manufacturer developing new production techniques, innovation can come in all shapes and sizes, and is very rarely bound by industry.

However, around nine out of ten eligible SMEs fail to claim for R&D tax relief, indicating that the hidden value of innovation is not known.

“Companies are missing out on valuable R&D tax credits to the tune of thousands of pounds,” says Jon. “Generally speaking, I find it’s the businesses you typically wouldn’t associate with R&D that are overlooking relief.”

“The very term “R&D” often deters many firms from applying,” Jon explains. “Innovation doesn’t always take place in laboratories with scientists in white coats. On numerous occasions I’ve had business owners tell me “we don’t really do R&D”, often perceiving the scope of qualifying activities to be much narrower.”

If you are developing new products, processes or services there is a strong chance that you are eligible for R&D tax relief. The relief allows a company to deduct an extra 130% of qualifying costs from its yearly profit (as well as the normal 100% deduction) to create a total 230% deduction. Qualifying expenditure can include costs spent on employees, software, transformed / consumed materials and subcontractors.

Here at PM+M have helped clients all over the UK recoup over £3m in R&D tax credits in total. In turn, this has enabled business-owners to reinvest in innovation, future-proof their companies and, most importantly, invest in growth initiatives.

Jon says: “If you’re unsure as whether you could qualify for tax relief, it is absolutely worth having a ten-minute phone call with us. The potential outcomes of making a claim could revolutionise your business and help you achieve your financial goals.”

We can help you to identify eligible R&D projects (historic, current and future), highlight expenditure incurred on qualifying activities, optimise the amount of relief available, draft supporting documentation to HMRC and offer support in defending your claim in the event of HMRC raising queries.

Please do not hesitate to get in touch with Jon to discuss your situation and understand whether or not you may be eligible.

HMRC brings uncertainty surrounding entrepreneurs’ relief to an end

A much welcomed amendment to the Finance Bill 2018-19 is being proposed which should bring to an end to the recent uncertainty surrounding entrepreneurs’ relief, triggered by the 2018 Autumn Budget announcements (as covered in our recent blog).

The change comes following lobbying by the ICAEW and CIOT and is set out in this ICAEW blog post.

The proposed 2018 Budget amendments remain, but with an alternative to the new test where an individual’s shareholding in a trading company will qualify for entrepreneurs’ relief where either or both of the following conditions are met:

  1. By virtue of that holding, the individual is beneficially entitled to at least 5% of the profits available for distribution to equity holders and, on a winding up, would be beneficially entitled to at least 5% of assets so available, or
  2. In the event of a disposal of the whole of the ordinary share capital of the company, the individual would be beneficially entitled to at least 5% of the proceeds.

This new second part of the test should remove the uncertainty surrounding shareholders with alphabet shares as it indicates that where a company with alphabet shares is disposed of, then provided the shareholder receives at least 5% of the sale proceeds, they should qualify for entrepreneur’s relief even if they have not had an entitlement to 5% of dividends.

It is hoped that the amended test is adopted into law and provides an end to uncertainty for the vast majority of private company shareholders.

For further advice or a discussion about entrepreneurs’ relief, please contact our tax director, Claire Astley, on 01254 679131 or via email at claire.astley@pmm.co.uk.

HMRC guidance for businesses to prepare for potential no-deal Brexit

Ahead of Britain’s upcoming departure from the European Union (EU), HM Revenue & Customs (HMRC) is warning businesses about the necessary steps they need to take to prepare for the unlikely event of a no-deal Brexit.

Earlier this year HMRC sent an initial warning to businesses who import or export goods within the EU, warning that should we fail to reach a deal, there would be immediate changes about the way that businesses trade with the EU.

More recently, HMRC has prepared a second letter that will be sent to those businesses, detailing the three steps that businesses should take now to prepare for the possibility of no deal.

  • The first of these steps is to register for a UK Economic Operator Registration and Identification (EORI) number at https://goo.gl/paAobk.

Businesses will need an EORI number to continue to import or export goods with the EU after 29 March 2019, should the UK leave without a deal. They will also need the number to apply for upcoming authorisations that will help to make the customs processes easier for businesses.

  • The second step that businesses will be advised to take is to decide whether to hire a customs agent to make import/export declarations, or if the business would like to make these declarations themselves through software that interacts with HMRC systems.

Whatever the decision it is encouraged that businesses take steps to prepare by either contacting an agent to find out what information they require or contacting a software provider to ensure their product meets the requirements of the business affected.

  • The final action HMRC is encouraging businesses to take is to contact the organisation that moves their goods to find out if they require any additional information to allow them to make the correct safety and security declarations for the goods.

More information on these changes can be found at https://goo.gl/EfgXXS

The international team at East Lancashire Chamber of Commerce have also put together a ‘Brexit Hub’ to look the practical actions internationally active companies can take to prepare and mitigate or manage the impact of Brexit, details can be found here https://www.chamberelancs.co.uk/brexit/

If your business is likely to be affected and you are unsure about the actions required, then it is important to seek specialist advice. Contact us on 01254 679131 and speak with your usual PM+M contact should you need any help or email us at enquiries@pmm.co.uk.

How do changes in entrepreneurs’ relief following the Budget affect me and when do they come into force?

PM+M’s tax director, Claire Astley, examines the changes to entrepreneurs’relief following announcements made in the 2018 Autumn Budget.

Entrepreneurs’ relief allows the individual owners of business assets, including shares in a “personal company” (see definition below), to pay a reduced rate of tax on any capital gain they make when they sell those assets.  Entrepreneurs’ relief applies to individuals only.  It isn’t applicable to any gains made by limited companies.

Key changes following Autumn Budget

The Chancellor announced two key changes to entrepreneurs’ relief which shareholders need to consider now.

The first change announced was the definition of a ‘personal company’ for entrepreneurs’ relief.  Previously, a personal company was defined as a trading company in which the shareholder:

  • is an office holder, director or employee of the company or group company; and
  • holds at least 5% of the ordinary share capital and of the voting rights of the company.

Following the Budget announcements, the shareholder will now also need to hold a 5% interest in the distributable profits and the net assets of the company for the relief to be available on the gain.

As this change will apply to disposals on or after 29 October 2018, the new conditions will need to have been met for a minimum period of 12 months leading up the disposal, this could have an impact on any imminent sales.

The second change, effective from 6 April 2019, is to extend the holding period throughout which the qualifying conditions for the relief must be satisfied before the disposal from one year to two years.

Finally, an individual whose shareholding is below the 5% qualifying threshold due to an issue of new shares will from April 2019 be able to obtain entrepreneurs’ relief on gains made up to the time of the dilution and freeze their entitlement at that point.

Points to note

There has been much discussion in the industry media regarding the impact these changes may have on shareholders with alphabet shares in their personal company and whether such shareholders will meet the new 5% interest in distributable profits condition.  The changes in legislation have led to a great deal of uncertainty in this area and the professional bodies are due to meet with HMRC on 12th December to hopefully clarify the position.

On the bright side these new conditions do not apply to shares issued through the enterprise management investment (EMI) scheme making this an even more attractive option for issuing shares to key employees.

Next steps

Shareholders with alphabet shares should sit tight for now and await the outcome of the discussions with HMRC.  Shareholders with alphabet shares who are in the process of selling their shares please contact us for a review of your position.

Any changes made to share rights without proper advice could result in income tax charges arising for shareholders under the employment related securities legislation, so it is important not to rush into making changes.

For advice on this matter speak to Claire Astley on 01254 679131 or email Claire directly at claire.astley@pmm.co.uk.

Christmas present appeal 2018

 

 

 

 

 

 

In 2010, we launched the first ever PM+M Christmas present appeal where our team, clients and friends were asked to donate Christmas presents for local vulnerable children. Due to the success and generosity over the past eight years we have decided to run the appeal again.

Over the next few weeks we’ll be collecting gifts for Blackburn, Burnley and Bury Children’s Services and want to make it our biggest year ever!

If you are able to spare a little time and money, we know your donations will be greatly appreciated. For some children, this could be the only gift they receive this Christmas. Gifts can be for children of any age or gender and we have included a few guidelines below:

  • Gifts should be to the value of around £10
  • Gifts must be new
  • Gifts can either be wrapped or unwrapped
  • If wrapped, gifts should be clearly marked with gender and age range
  • Gifts should not contain confectionery or alcohol

Gifts can be dropped off at our any of our offices between 8:30am and 5pm. The last day for drop off is Thursday 13 December.

The PM+M team would like to take this opportunity to thank you for your kindness and generosity and we do hope that as many of you as possible will join us in supporting such a worthy cause.

A reminder of our office addresses are below. Should you require any further information, please get in touch with our marketing team on 01254 679131.

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PM+M wins Professional, Legal and Financial award for the second year running at Made in Bury Business Awards

Today all of us here at PM+M are celebrating after winning the Professional, Legal and Financial award for the second year running at the prestigious Made in Bury Business Awards.

The Made in Bury Business Awards (which took place last night – Thursday 22 November) are held to champion local Bury businesses and celebrate their outstanding achievements. This is the sixth year the awards have been staged, and entries were judged by a high-profile panel which included some of the borough’s leading business professionals.

Along with being crowned as best Professional, Legal and Financial firm in Bury, we are pleased to confirm that PM+M was also highly commended in two other categories – Excellence in Developing People (for our dedication and commitment to supporting and encouraging our team to exceed), and Businesswoman of the Year (in which PM+M partner Helen Clayton was shortlisted).

As the leader of PM+M’s Bury office, Helen has played an integral part in PM+M’s success over the past few years, and under Helen’s direction, PM+M has become a leading figure in Bury’s business scene.

Helen said: “As our Bury office goes from strength to strength, I am so proud of the PM+M team and the success we have had in Bury since setting up the new office just over two years ago. Winning this award for a second year really does demonstrate our commitment to the Bury community which we serve. We will of course continue to develop and will hopefully be back to enter Made in Bury Business Awards next year and fingers crossed we will walk away with a third success story!”

Jim Akrill – corporate finance partner at PM+M discusses why shareholders need to plan for the future

Jim, what is one of the most common questions you ask your corporate clients?
There are many but one of the most important is:  What would you like to achieve and how are you going to do it? It is always surprising to find how many look not much further forward than next week when they need to be thinking longer term.

What is the problem?
Well, we often see a reality gap between the current position of the business and the value aspirations of the shareholders. Not only that, but the thoughts of individual shareholders on matters such as strategy and value realisation also vary. Needless to say, if you have disagreement at the top then the business is more likely to underperform. And some of the changes required might not be overnight fixes. It’s often the “elephant in the room” syndrome.

How do you overcome that?
These things need to be discussed openly and often they are not, especially in family businesses. Shareholders must be encouraged to produce a plan to deliver both business and personal objectives which can only be done through honest dialogue. We work with business owners to resolve various issues, including those relating to growth, exit and succession.

When should the process start?
It’s never too early to start, so now. And it doesn’t just apply to more mature businesses. For example, we are working with a new, high growth software business and already talking about how to realise value for the shareholders.

What does the process involve?
We begin with a strategic review which looks at shareholder aspirations for the business, and ultimately themselves, as well as assessing business performance. Significant issues can be identified and we can start to work with shareholders to agree a shared vision for the future. For some businesses a sale might be the best way forward. For others it might be a question of re-focusing and making changes to create additional value.

How challenging is it?
It depends! Some businesses face more difficult circumstances than others and you can imagine how challenging shareholder dynamics can be. We work in partnership with shareholders to create achievable action plans. Being part of a larger accountancy practice also allows us to tap into other skilled professionals from within the firm. So, for example, we will work closely with our tax and wealth management colleagues to ensure that all angles are considered. This provides reassurance for our clients.

If you would like to discuss how you can plan for the future, please contact our Corporate Finance Partner, Jim Akrill, on 01254 604353 or via email at jim.akrill@pmm.co.uk.

 

“Paving the way to a brighter future” – PM+M partner Jane Parry reviews Autumn Budget announcement

Today’s Budget was described by the Chancellor as one that ‘paved the way to a brighter future’ and that austerity is finally coming to an end. However, as we are still to secure a Brexit deal with our EU partners, I believe that it can only really be described as ‘steady as you go’ until that is actually sorted. We will also have to wait to see if his claim of a post-Brexit ‘double dividend’ comes to fruition. Let’s hope it does.

From a North West point of view things are looking generally good. According to the NatWest North West PMI, IHS 2018 Report, the region is enjoying the strongest growth in the UK along with Wales; new business rose at the fastest pace; whilst the rate of job creation accelerated to make the North West the leading UK region.

Business Rates

The news that for the next two years up to the next business rates revaluation, for all businesses with a rateable value of £51,000 or less, the government will cut their rate bills by one third. Whilst £900m worth of immediate relief is coming on stream and town planning laws are being relaxed. Many small high street businesses have been calling for this kind of action for a long time and it couldn’t have come soon enough – especially as there will also be a new fund to improve infrastructure and transport, to re-develop empty shops as homes and offices, and restore and re-use old and historic properties.

Roads

I was also pleased to see that Britain’s roads will get a £420m immediate injection in a bid to improve our network including to help local authorities fix pot holes. Although small projects in themselves, these kinds of essential repairs will make a significant difference to communities and businesses and will ultimately drive efficiency and productivity.

Broadband Infrastructure

Much of the North West is rural and the lack of superfast broadband has been a real problem for both businesses and individuals. The announcement that £250m is being pledged to install superfast broadband in some of the country’s most remote areas is again a positive step. If rural businesses are to compete then they need to have full fibre connectivity. I just hope it will be rolled out quickly and efficiently.

Business Investment Stimulus Measures

The news that the Annual Investment Allowance will rise from £200,000 to £1m is welcome and should stimulate business investment – especially in such an innovative region such as ours. Also, a new allowance for investment in new commercial property is a positive step.

Digital Services Tax

The introduction of a digital tax on global companies with at least £500m in global revenue was a surprise to some. He claims it will come into force in April 2020 and will raise £400m per year. There’s no doubt he’s right that progress on this has been ‘painfully slow’ but it’s step in the right direction as start ups should not shoulder the burden. However, what is really needed is a global agreement. That should be the aim.

Apprenticeships

I think the cutting of the apprentice fee for small businesses – qualifying companies will have to contribute 50% less – will be well received. We know of many firms in the North West which have been deterred from taking on apprentices due to the cost. Anything to combat that reticence must be applauded.

Tax

The Chancellor has announced a tax cut for 32 million people with the increasing of the personal tax allowance to £12,500 and the higher rate to £50,000. These were the allowance targets for 2020 but are being bought forward to 2019.

The tightening of the rules on the abuse of self-employment status will mean more workers becoming subject to PAYE from 2020.  For some of them that is probably reasonable, for others the wielding of a rather blunt tool by HMRC may result in more costs and confusion.

Finally, Making Tax Digital for VAT continues its inexorable march towards introduction on 1 April for the vast majority of VAT registered businesses.  Whilst modernisation and enhanced efficiency in the tax system is a goal nobody can disagree with, the Government have still seemingly not understood the very real upheaval and cost that this will bring for many, particularly small, businesses.

Conclusion

All in all, this Budget produced no surprises or shocks. Some of the announcements could well be good for business but without a Brexit deal I’m sceptical about what will actually happen. Time, as they say, will tell.

VAT: changes on the horizon for the construction industry with huge potential impact on cashflow

Significant VAT changes for the construction industry are due to come into force on 1 October 2019.

New legislation is designed to combat what HMRC describe as “missing trader fraud”, whereby the suppliers charge and collect VAT, but do not pay it over to HMRC.

In essence, the legislation will require the recipient rather than the supplier to account for the VAT due on certain construction services.

The new regime requires careful planning from all construction businesses in order to avoid a cashflow crisis.

How will the new rules work?

Under the new rules, businesses supplying construction services must not charge VAT where their customer:

  • is registered for VAT; and
  • will use the services to make an onward supply of construction services.

Instead of the supplier charging VAT, the recipient must self-account for VAT on the services received. This is known as ‘reverse charge’ accounting.

With each business transaction, the VAT will be calculated as a paper exercise and registered on the invoice as a ‘reverse charge’. Only client-facing organisations at the top of the construction supply chain will be required to pay the tax.

Who will be affected?

As a general rule of thumb, any company that is registered with the Construction Industry Scheme (CIS) – HMRC’s construction-specific tax-collecting regime will fall into the reverse charge category.

The new rules will apply to construction services supplied from 1 October 2019, regardless of value, even if construction is not the main business activity.

The definition of ‘construction services’ is extensive and duplicates the definitions used for the Construction Industry Scheme (CIS). It also includes goods, such as building materials, but only when supplied as a single package within the construction service being provided (e.g. a builder providing bricks).

Exclusions

There are some exclusions, such as the installation of seating, blinds, shutters and security systems. Also excluded are professional services of architects, surveyors and consultants. However, where excluded services are supplied as a package with other services which fall within the new criteria, the whole package will be subject to the reverse charge.

There are further exclusions for construction services which are to be used by the recipient to make an onward supply to a connected party or to make a supply between a landlord and tenant.

Clearly if the construction services qualify to be treated as zero rated then the reverse charge will not apply. For example, a sub-contractor supplying construction services to a main contractor who is building a new residential property would currently charge VAT at 0%. This treatment is unaffected by these new reverse charge rules and the sub-contractor would continue to charge VAT at 0%

In addition, the reverse charge rules will not apply where the recipient of the construction service is not VAT registered. In these circumstances, VAT must be charged in the normal way. However, the non-VAT registered recipient must add the value of construction services received to the value of its sales, when deciding whether it has exceeded the VAT registration threshold (currently £85,000). This is likely to mean that many small contractors who are not currently VAT registered will need to be registered in the future.

HMRC to be strict from 1 October 2019

As an anti-fraud measure, it is expected that HMRC will enforce the new rules strictly:

  • If a supplier charges VAT in error, HMRC may not allow the recipient to reclaim it
  • If a supplier applies the reverse charge rules in a situation where it should have charged VAT, HMRC will most likely seek to collect the under declared VAT from the supplier

In both situations, penalties and interest could apply. The main message we are delivering is that businesses within the construction sector need to have a sound understanding of the new rules and have systems in place ahead of the deadline to ensure that VAT is accounted for correctly.

Many subcontractors will find they are in a regular VAT refund position in the future. They will have VAT to claim on materials and overheads but will not charge VAT on sales where the reverse charge rules apply.

Some businesses will suffer a cashflow disadvantage, where VAT collected from customers is currently used as working capital before being paid over to HMRC.

To correctly apply the new rules, the supplier needs to know what its customer intends to do with the services and will need to be able to evidence this to HMRC. HMRC are undertaking a detailed technical consultation on this issue.

How should you prepare?

Final legislation and HMRC guidance is due to be issued in October of this year, giving businesses 12 months to prepare. Affected businesses should ensure they are fully up to date with the changes and when the VAT should be charged and, likewise when a reverse charge is required.

Well in advance of October 2019 construction businesses need to conduct a full review of supplies made to and received from other VAT registered contractors to establish whether these will be subject to a reverse charge from October 2019.

It is of course right that the problem of missing trader fraud within the construction industry be tackled, but if traders have not picked up on the forthcoming changes they may be faced with unwanted penalties and interest as a consequence of failing to implement the reverse charge correctly. We would recommend that in the event of doubt, seek guidance from your professional adviser to ensure there are no such unwelcome surprises.

If you would like to discuss how the above changes could impact on your business, please contact our property tax specialist, Jonathan Cunningham, on 01254 604318 or via email at jonathan.cunningham@pmm.co.uk.

Inheritance tax planning is best when it’s simple

Inheritance tax planning is something that many of us don’t want to think about. Facing your own mortality isn’t easy and can involve some difficult decisions, particularly in complex and extended families.

That said, there can be significant benefits from doing some basic planning at the right time, providing reassurance that your affairs are in order and your family aren’t going to face a huge tax bill.

I always tell my clients to keep it simple. There are some fancy schemes out there, but they usually bring lots of complexity and can reduce future flexibility. More often than not, some sensible advance planning can achieve substantial benefits without the complexity.

That might be a mix of getting your will right, ensuring that ownership of assets between you, your spouse and your family is structured properly, making appropriate lifetime gifts, fully using available allowances and exemptions and getting your investment strategy right. Our experienced tax team works closely with our financial planning specialists on the latter.

Trusts can be a great way of passing on wealth without losing control of it. You may be wary of trusts and think they are too complex, but that really isn’t the case. They can be simple and achieve exactly what the client wants, without significant cost or complexity.

Family investment companies can also be effective under the right circumstances, and they are becoming increasingly popular.

The key to inheritance tax efficiency is to think about it early and be open with your family.  Having conversations now can avoid problems later and pave the way for some effective tax planning.

We would be more than happy to help you begin the planning process. Please do not hesitate to speak to either myself (Jane Parry – jane.parry@pmm.co.uk), or member of our tax team to arrange a discussion on 01254 679131, or via email at tax@pmm.co.uk.