Download - Tax aspects of raising finance
KEY TAX ASPECTS OF RAISING FINANCE
PROFIT
TAXSAVINGS
INVEST
Nicholas Charles FCCAQualified accountant who joined C Charles & Co in September 2003.
Recognised as a Fellow Chartered Certified Accountant in May 2009
Property tax expert and a consultant on niche tax strategies and planning for high net worth clients
Owns and runs a multi million pound property portfolio
Chairman of Penny Power Limited and FD of Bank to The Future.
Property consultant and have brokered commercial property deals worth more than £4m
AGENDATo keep you awake!To make you aware of the key areas of tax that can save you and your businesses money.
EXIT: Entrepreneurs Relief
SEIS – Seed Enterprise Investment Scheme
EIS – Enterprise Investment Scheme
SEIS vs. EIS
Q & A
Entrepreneurs’ Relief• 10% Tax on gains from sale of up to £10m!• Only applicable to individuals and trusts NOT TO COMPANIES• Lifetime allowance• Applies to part disposal of business also
Vendor must sell “part of his business” HMRC will assess to see if the purchaser can operate part
purchase as a going concern No ER on disposal of business assets – unless they can be
operated as a business in the own right
ENTREPRENEURS RELIEF - ConditionsTYPE OF BUSINESS ASSET CONDITIONS
The whole or part of business Owned by the disposer throughout a period of at least 1 yr ending with the date of disposal (or cessation of trade).
An asset used for the purpose of a business at the time the trade ceased
1. The business was owned by the disposer for a time period as indicated above AND
2. The asset is disposed of on or within 3 yrs after the date of cessation
Shares or securities in a trading company which continues to trade after the disposal
1. The seller owns at least 5% of the company’s voting share capital AND
2. The seller was an officer or employee of the company.
Shares or securities in a trading company which ceases to trade.
As above BUT• The disposal must take place on or within 3 years after the date of cessation.
ER – Some Examples
SCENARIO1. Trading partnership sells it’s car park to a property
developer
2. Sole trader food business sells one supplier lines including customer database, goodwill and trademarks
3. Sale of a building that was rented to your personal company and your business continues to rent out the property
4. Sale of a building whilst disposing of a qualifying shareholding in your company.
ER Relief?NO
YES – after court case
NO
YES – provided you were charging rent at MV
SEIS: SEED ENTERPRISE INVESTMENT SCHEME
New legislation – introduced on 6 April 2012
Similar to EIS but targets early stage companies carrying on a NEW business in a qualifying trade.
In Year 1: 6/4/2012 – 5/04/2013 any gains realised from the disposal of assets that are invested through SEIS will be EXEMPT CGT!
Tax Relief 50% or even 78% making the investment more attractive for investors.
SEIS – Investor SummaryInvestor gets 50% income tax relief but NO tax rebateMaximum of £100,000 of investmentShares must be subscribed for (i.e. new shares) and paid up in full in cash. Beware of newly registered companiesIn YEAR 1 only can reinvest a chargeable gain incurred in 2012/13 into a SEIS qualifying company. Subject to maximum investors gain will be exempt (saving 28%) AND will also qualify for 50% income tax relief!Investor cannot be an employee but can be a director!Shares also exempt from CGT if held for 3 qualifying years
SEIS – Investor Summary 2Investor cannot own > 30% of the company shares.30% includes relatives and business partners but not brothers and sistersShares MUST be full risk ordinary shares – preference shares will NOT qualify.HMRC will not issue a compliance certificate until Finance Act has been given Royal Assent!
Example 2012/13 £ £
Matt’s Chargeable gains subject to 28% CGT 60,000
Matt’s income tax liability 97,000
Matt invests £60,000 into SEIS shares @ 50% 30,000
Net tax liability 47,000
TOTAL TAX SAVED: (60,000 x 28%) + 30,000 46,800
ACTUAL COST OF £60,000 INVESTMENT 13,200
SEIS – COMPANY SUMMARYAT THE TIME SHARES ARE ISSUED:• Must not have > 25 employees• Gross assets must be < £200,000 – this applies to
group assets if company belongs to a group.• NO EIS or VCT investment must have been made
by issuing company• Any trade carried on by company must be < 2
years old at the date of issue of shares• Maximum of £150,000 can be raisedFor full details please visit: http://
www.hmrc.gov.uk/seedeis/index.htm
SEIS – Commercial Considerations
If you are starting a new “trade” or company you MUST consider SEIS if looking to raise money.Make sure company qualifies!SEIS company investments are potentially 78% cheaperCombine SEIS with EIS or VCT. However you must spend 70% of monies raised by the SEIS before you can do soTherefore raise £150,000 with SEIS and then look to raise additional finance via either EIS or VCT.
EIS – Enterprise Investment Scheme
INVESTOR:Must invest a minimum £500
Income tax relief = 30% of the cost of shares
Max tax relief = £150,000 on a £500,000 investment
Can carry back relief to preceding tax year If qualifying shares are held for > 3 years then any gain is free from CGT
If shares are NOT held for 3 years then Income tax relief is withdrawn.
Loss relief is available if shares are sold at a loss
Can defer Capital Gains Tax if gain is invested in shares of an EIS qualifying company – NO LIMIT!
EIS – Connection to CompanyAn investor is “connected” if 2 years before share
issue or 3 years after share issue:
1. Investor controls > 30% of the share capital
2. Shareholdings held by “associates” are also taken into account.
3. Investor is or becomes a partner, director or employee of the company. This does NOT apply to Business Angels.
EXAMPLE:
Mr X purchases 10% of EIS share capital in Yr 1 and then 21% in Yr 2. There will be no relief in Yr 2 AND he will have to repay the Yr 1 tax relief claimed.
EIS – Connection to Company
ITEM Unconnected Connected
Income Tax Relief on subscriptions Yes No
Capital Gains Exemption on disposal of shares eligible for income tax relief
Yes No
Loss Relief on disposal of shares disposed of at a loss
Yes Yes
Capital Gains Deferral (Unlimited) Yes Yes
EIS – Company Considerations
Company can raise £2m in any 12 month period
Small Company Enterprise Centre decides if company qualifies for EIS relief.
Qualifying companies will have to supply form EIS3 to investors so that they can claim relief.
Money MUST be used within 2 yrs of share issue for the purposes of trade or R&D
Company cannot be involved in “non trading activities”
Non Trading Activities
Dealings in land
Financial activities incl. banking
Leasing assets
Property Development
Operating or managing hotels
Operating nursing homes
Legal or accountancy services
Excluded activities must not be > 20% of the companies activities.
SEIS vs. EIS
STATEMENT SEIS EIS
Maximum amount that can be raised? £150,000 £2m
Amount of tax Relief in 2012/13? 50%/78% 30%
Can you carry back relief? Yes but not in 12/13
Yes
What happens if you reinvest capital gains Exempt – up to limit
Deferral – No Limit
CGT on sale of shares if held > 3 years No No
Maximum % of voting shares held including associates?
30% 30%
FURTHER INFORMATION
www.charlesfcca.com 020 7263 3295
EIS: Small Company Enterprise Centre (Admin team)
South Wing1st Floor, Fitzroy HouseCastle Meadow RoadNottingham NG2 1BD 0115 974 1250
WITH ACTION COMES RESULTS
LEARN TO ASK THE RIGHT QUESTIONS TO YOUR ADVISORS
1. Does your company qualify for SEIS or EIS?2. Are you looking to sell whole or part of your business? If so will your
gain qualify for ER?3. Is your business set up in the most tax efficient way?4. Do you have any overseas operations and if so do you need to setup
an offshore company?5. What tax strategies/planning are available for your business TODAY?