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?