How (a background in) sport has helped me settle in at C+T

Playing sports has always played a huge role in my life, filling the majority of free time I have. I feel the experiences I have encountered through playing sport have allowed me to begin developing the skills necessary to be successful in my professional career. However, in order to develop my skills further, I needed real exposure to a professional environment which is where C+T comes in.

Going back to this time last year, summer 2018, I was about to take on one of the most exciting challenges, one that on paper seems very different to the challenge here at C+T, but surprisingly had many similarities.

Setting off on my own on the 18,000km+ journey to Christchurch, New Zealand to play rugby with one of the country’s most prestigious teams is something I had previously only dreamed of. The complete unknown loomed from my first step on NZ soil. Everything was new to me; the people, the culture and the environment in general were a huge change – the term ‘thrown into the deep end’ springs to mind!

You might be wondering what this has to do with an Entrepreneurial Tax Internship in Edinburgh? The feelings I faced on day 1 here at C+T were similar, albeit I wasn’t throwing myself around the office (most of the time). Entering a new, professional environment comes with the same feelings of uncertainty, which I have come to realise must be cherished and taken full advantage of. The opportunity to do something new and different allows you to develop and grow as an individual, both in the office, on the field and in life generally.

After somewhat settling into life here as an intern I have been exposed to a vast variety of taxes, tax reliefs and tax procedures from CGT to EMIs to completing corporation tax provisions. I cannot speak highly enough of the patience and understanding I have had from everyone thus far; I assume that an intern asking questions every five minutes can be a bit irritating (to say the least!), but if you don’t ask, how do you ever learn?

I have thoroughly enjoyed being exposed to the R&D team at C+T, learning about legislation regarding tax relief has allowed me to understand the substantial impact that correct R&D advice can have on a business. Listening in on calls and seeing first-hand the interactions between clients showcased the friendly, but professional manner that C+T hold themselves to. Working with the R&D department, I got the chance to learn and understand the new and unique technological advancements each client makes, something I found to be a fascinating!

One final thing that stands out for me about C+T are the people. They say the people make the firm and I believe that to be true here at C+T. Like the Kiwis, I received a warm welcome, they really made me feel like part of the team from day 1, showing me that C+T put an emphasis on developing relationships both internally and externally.

Overall, I am looking forward to furthering my knowledge and developing my skills in my final two weeks at C+T and I am excited for any future challenges that may arise both in the office and the field.

New blog: my time working in the Entrepreneurial Tax Team

Mid-way through my third year at university, summer internships seemed to be on everyone’s mind. Most people I knew were talking about the roles that they had applied for and how important internships were for putting you in a good starting position post-university. Doing an internship seemed like a great idea, it would provide me with an interesting way to fill my 3-month summer break, learn more about the working world and develop new skills. Having enjoyed the brief two weeks of work experience I had done with Chiene + Tait the previous summer, an internship with the entrepreneurial tax team seemed like the ideal opportunity.  I applied and was thrilled when I was offered an interview and even more thrilled when I was offered a six-week position with the firm.

Going from university to working at Chiene + Tait took some adjustment. I’m currently studying Economics and Modern History and I thought when I first joined the firm that studying these subjects would be vastly different to working in an accountancy firm. At university I only have around six contact hours a week  (I’m sure the English and international students must wonder what they’re paying for a lot of the time) and, although the lack of teaching time does mean a significant amount of independent study and long days spent in the library, it is often quite an unstructured working environment. Joining the firm this summer has given me an insight into what my working life could be like. I have also found that although some of the knowledge I have gained from university may not always be useful (or who knows maybe one day that modern history essay on the cultural impact of the miniskirt will come in handy), the skills I have gained often are.

‘So, what actually is entrepreneurial tax?’ A question I have been asked many times by my friends and family since starting my internship at Chiene + Tait this summer, and one that I struggled to fully answer at first. Over the past three weeks I have quickly learned what a job in entrepreneurial tax entails (although from writing this blog I’m beginning to realise that I may never learn how to spell entrepreneurial), and I have seen the great work that Chiene + Tait does for growing businesses. Throughout my time here I’ve been assigned interesting and engaging work to do with the various schemes available to companies and investors. From Enterprise Management Incentives (EMI) to Enterprise Investment Schemes (EIS) and Research & Development Tax Credits the variety of work I have been assigned has been challenging but also enjoyable. It has shown me just how many fascinating companies the firm deals with.  I’ve even attempted some Corporate Tax which I think I might be finally wrapping my head around. In just three weeks my knowledge of Entrepreneurial Tax and other types of tax has grown substantially, and I can now provide a more detailed answer when people ask me what entrepreneurial tax is.

The work and type of clients have been very interesting but above all, being made to feel part of such a friendly team has made the whole experience very enjoyable.

R&D tax relief: possible pitfalls and top tips

Research and Development (R&D) tax relief was initially introduced by the government in 2000 with the aim of encouraging greater spending on R&D and increasing investment in innovation.

There are two schemes for claiming relief; the Small or Medium-sized Enterprise (“SME”) scheme and the Research and Development Expenditure Credits (“RDEC”) scheme. Relief can either reduce a company’s tax liability or loss-making companies can choose to receive a cash payment.

The SME scheme is significantly more generous than the RDEC scheme. If opting for a cash payment, the benefit under the SME scheme is approximately 33% of the qualifying expenditure, however under the RDEC scheme this would only result in approximately a 10% benefit. To put this into perspective, if a company spends £100,000 of qualifying expenditure under the SME scheme, they would receive a cash repayment of £33,350, but under RDEC the repayment would be £9,720.

The R&D pitfalls

Here at Chiene + Tait, our team of full-time R&D specialists work with many different sized companies across various industries. When speaking to companies who are considering making R&D claims, we have come across many who fit the size criteria of an SME but are not aware of other factors that can prevent them from claiming the more generous rate of relief. As this can have a significant impact on the amount of benefit a company can receive, at a stage when funding is vital to the success of a business, I have summarised some of the main factors below.

Grant funding and subsidies

There is a common misconception that if a company has received grant funding, then they cannot claim R&D relief. This is not true. However, receiving grants can impact upon the level of relief the company is entitled to claim, causing some or all of the qualifying project expenditure to be claimed under the RDEC scheme, potentially for the entire life of the project.

Because many companies rely on grant funding during the start-up phase, they often describe their entire business model in their grant application in attempt to secure the funding. The grant application is used to determine which of the company’s activities are subsidised, so if the entire business model is described, all projects could be impacted by the grant. This can have a significant impact on the benefit of an R&D claim. Therefore, it is important to keep this in mind when applying for grants and weigh up the potential benefit of an R&D claim vs the grant amount.

Contracts with customers

If a project is considered to be subcontracted into the claimant company, relief is only eligible under the RDEC scheme. Two of the main factors that need to be considered are whether the company retains the right to benefit from the IP generated and whether the company bears economic risk.

If a contract is in place that states the claimant company does not retain the right to benefit from the IP generated and they do not bear economic risk then the project is considered subcontracted for R&D purposes. The party who contracted the work into the Company needs to be considered, as this may mean the project is also ineligible for relief under the RDEC scheme.

Investments

A claimant company is required to include the accounting data of other entities if they are considered to be ‘linked’ or ‘partner’ enterprises. Aggregating this data can sometimes cause a company to breach the SME thresholds for R&D purposes.

A linked enterprise is an enterprise that can control another enterprise, or is controlled by another enterprise, either directly or indirectly. A partner enterprise is one that is not linked, but where an enterprise holds 25% or more of the capital or voting rights in the other (either on its own or in combination with other linked enterprises).

This is something that should be considered when carrying out an investment round.

The R&D tips

The total amount of R&D support paid out has increased annually, but HMRC still believe that many companies are missing out on relief, either because they are not aware they qualify, or because they are underclaiming. I have included some useful tips below, to help companies maximise their claim and ensure they are claiming the relief to which they are entitled.

Dividends

It is common for directors to take dividends, rather than putting themselves on the payroll, to avoid paying money through the PAYE scheme that could otherwise be invested back into the business. However, dividends are not a qualifying cost for R&D tax relief purposes and, as such, cannot be included in a claim.

As employees’ and directors’ gross salaries are a qualifying cost, it may be worth considering adding any directors to the payroll and paying them below the personal allowance and national insurance thresholds, so no PAYE or NIC are payable, and pay any further remuneration as dividends.

Staff

In the early stages of business, many companies will outsource work to specialists or utilise subcontractors and agency workers. Although this is sometimes the only option for a business, it is worth keeping in mind that you are more likely to get a bigger return on your investment if it is spent on employing staff, rather than engaging with third parties. This is because, for SME claims, costs spent on engaging with subcontractors and agency workers will be restricted to 65%. Further, if you are claiming under the RDEC scheme, there are multiple restrictions on third party costs, meaning you may not be able to claim any of these costs incurred.

Another important point to note when considering whether to employ staff is the staff expenditure limit. Currently, under the RDEC scheme, the payment of a cash credit is subject to a cap of the total PAYE and NIC paid to HMRC on behalf of the employees included in the claim. So, if you don’t have any employees involved in the R&D, you will not be entitled to a cash payment. The Treasury announced in the 2018 budget that a similar cap will be introduced for the SME scheme from April 2020 to prevent abuse of the relief by fraudulent companies. The cap will be three times the company’s total PAYE and NIC liabilities for the year of the claim.

Record keeping

Although HMRC do not require claimant companies to keep detailed records, it can help to maximise an R&D claim and to defend the quantum of the claim in the event of a challenge from HMRC. Clear descriptions on accounting entries and ensuring they are posted to a relevant nominal code make it easy to identify any qualifying costs related to the R&D activities. Cloud accountancy packages such as Xero, FreeAgent and Quickbooks make this increasingly easy, even allowing you to attach invoices to individual transactions.

Here at Chiene + Tait, our R&D specialists have years of experience preparing and submitting successful claims for hundreds of companies, across both schemes, in multiple industries. We are experienced in dealing with all of the factors mentioned above.

If you are considering claiming relief and would like to hear how we can help you, please email me at Eilidh.Hobbs@chiene.co.uk.

Becoming a tax expert without a finance background

I joined the entrepreneurial tax team as a trainee around six weeks ago, after graduating with a degree in History. I thought it might be interesting to give the perspective of someone starting a career in tax without any kind of background in finance.

I was initially nervous coming into this job. I hadn’t done any kind of maths beyond counting change for 5 years, and in my mind I associated tax with an awful lot of maths and spreadsheets. There are indeed quite a few big spreadsheets, but after a crash course in accounts, I at least understand most of the data I have to work with (depreciation and amortisation are still somewhat mysterious concepts).

Since I started in mid-April, most of my time has been spent working on EMI and ERS returns (the details of which are too complicated to go into in this blog). Most of them are very simple to decide what needs to be done: either submitting a nil return, a return, or no return at all. Checking Companies House for any issue of shares is usually enough to see if anything reportable has gone on, but the more challenging decisions are when it’s not so simple.

Following the (sometimes virtual) paper trail to determine who was issued shares, whether they were employment-related, and so on, is very similar to carrying out research for an essay. You usually have an idea of what you’re looking for, and the hope is to find something somewhere to confirm your thesis, whether that’s an option agreement dating back several years, or finding that it’s a family-owned business and so the transfer of shares probably isn’t reportable.

The skills of analysis and reasoning are very important here, and a basic knowledge of the legislation surrounding employment-related securities is obviously required, but a lot of it is common sense, being able to pick out relevant information, and not being afraid to ask more experienced colleagues what they think about a given scenario.

I have also recently started dipping my toes into the murky waters of EIS and SEIS advance assurance, and even entrusted with writing the first draft of an EMI share valuation, where again being able to quickly scan a long business plan or similar document helps save a lot of time.

Outside of the work I’ve been doing, joining the corporate world is a profound but fascinating change from university, and it’s really interesting to see how the various departments of Chiene + Tait mesh together and interact. Events such as a biannual breakfast briefing and staff lunches help build stronger ties with colleagues that you might otherwise not regularly speak to, though exactly what goes on in audit or corporate finance is still something of a mystery to me.

The work is challenging, but rarely overwhelming, and it’s always possible to ask for clarification about something I’m finding confusing (which happens a lot, but is very slowly starting to happen less). Anyone considering a career in tax that might be put off by a preconceived notion of what tax is would probably find entrepreneurial tax to be very different to what they expected, as I have, even though at some point I suspect I will have to figure out to calculate percentage increase and decrease properly.

M&A transactions: 10 problems when you don’t get tax advice

Tax directly – and significantly – changes the price and return from M&A transactions, so it’s surprising that often it isn’t given earlier expert consideration. We often get called to fix a problem with a deal, but retrospective action can be too late. If you want a smooth no-surprises transaction, it’s best to get the right advice early on. Here are some of the things we’ve seen at a late stage recently.

Missing out on Entrepreneurs’ Relief

Many individual sellers hope to benefit from Entrepreneurs’ Relief (ER), so that the rate of their Capital Gains Tax (CGT) is halved from 20% to 10%. The conditions to get this relief can seem straightforward, but we’ve seen instances where:

1. A selling shareholder resigned as company secretary / director in anticipation of a sale (reasonably concluding that this was appropriate as he would not continue in this role after the sale). Unfortunately, this meant the conditions for ER ceased to be satisfied and he was taxed at the 20% rate on the sale of his shares.

2. The sellers of a business assumed they would get ER and signed a letter of intent with the purchaser. However, the price mechanism in the letter of intent was such that no cash in the company would be paid for by the purchaser; this meant they had to take dividends of the cash and pay tax at the dividend rate of 38.1%, rather than at the ER CGT rate of 10% they had expected.

3. A client had been assured by legal advisors that ER would be available, but this was incorrect due to earn-out rights. The further cash consideration paid, above the amount estimated when the Share Purchase Agreement (“SPA”) was signed, was not covered by ER and so the client was taxed at the higher CGT rate of 20%. The client was also not made aware of the need to go through a valuation process with HMRC as part of filing their self-assessment tax return. It is important that sellers consider the tax position carefully before accepting a cash earn-out right. Well-advised sellers might want to negotiate to structure the deal as a ‘reverse earn-out’ right.

Getting the tax covenant wrong

A tax covenant is a mechanism for the seller to pay to the buyer, pound for pound, an amount equal to any (usually unexpected) tax due by the Company sold (in respect of the period before the sale is completed). The tax covenant is, in effect, a price-adjustment mechanism, so it is well worth getting it right. But we’ve seen cases where:

4. The notice provisions (due to the way they interacted with provisions of the tax deed) were so unclear it wasn’t obvious how a buyer would give notice to the seller under the tax covenant. This risked the process used being open to legal challenge, and the buyer then not being able to claim potentially significant amounts of tax.

5. A seller’s accountants, who were responsible for reviewing the tax covenant before it was included in the SPA, made no amendments to the documents – despite these being based on significantly out-of-date styles with now incorrect legislative references.

6. A seller disclosed nothing against the tax warranties when it was clear there were disclosures to be made; the seller thought his lawyers would do this (as they had for the other warranties), and the lawyers believed they could rely on their engagement letter stating they were not responsible for tax matters. While the law firm had protected their own position, the client perception was not that they had received the assistance they expected to protect their interests.

7. A buyer’s lawyer stated he was happy to use his “usual form” of tax covenant despite the fact this did not tie up with the price mechanism set out in the heads of terms and SPA.

8. Sellers realised (after a claim had been made against them by the buyer) that the (buyer-favourable) drafting in the tax covenant gave them no rights to require any defence be made by the company they had sold against the HMRC claim for tax; which the sellers were on the hook for under the tax covenant.

Risks from lack of knowledge and clarity

No-one can be an expert on everything, so it seems sensible to consult with the right people at the right time. But we’ve seen:

9. Buyers and sellers arguing at the Completion Accounts preparation stage over the types, and amounts, of tax to be included in Completion Accounts. This was because the drafting in the SPA and tax deed (which had to be read together) was unclear on what was to be provided for in, and excluded from, those accounts.

10. Incorrect references to, and confusion over, which of “accounts”, “consolidated accounts”, and “completion accounts” should be referenced in the tax covenant, tax warranties and SPA.

The risks arising where tax-related elements of a transaction are incorrectly dealt with in the SPA are considerable. The usual period for claims to be brought under a tax covenant (or for breach of tax warranties) is seven years. This significantly exceeds other usual warranty and indemnity claim periods, which are commonly 18 or 24 months. This long period can even be even longer (say, to 20 years) if a tax authority brings an assessment under certain provisions. This is a significant period for a document to be potentially open to scrutiny from clients and other advisors if/ when tax-related claims come to be made under it.

So…talk to tax experts early in the M&A process

There is no substitute for engaging early with tax advisors on a proposed M&A deal. If this is done at the letter of intent / heads of terms stage, mistakes like the above can be avoided. The parties, together with their respective legal advisors, can clarify who will be responsible for the tax-related elements of the transaction and get expert insight from someone who understands the tax covenant and tax warranties and how they interact with the price and with the rest of the SPA.

Chiene + Tait has a team with extensive experience in dealing with tax on M&A transactions, including team members who have experience working in law firms. We would be happy to discuss how we could assist law firms, other professional advisers or their clients to ensure the tax-related aspects of a deal are appropriately dealt with and the transaction achieves the tax expectations of the parties.

Contact us to discuss:

Nicola Williams, Entrepreneurial Tax Senior Manager

Neil Norman, Entrepreneurial Tax Partner

The top four misconceptions on R&D tax relief

There are several big misconceptions surrounding R&D tax relief – we come across them on a near-daily basis. Despite it being one of the most generous corporation tax breaks available, many people rule themselves out without looking into it in greater detail. But if you do look into it, you might be surprised at what qualifies for R&D tax relief.

So Dave Philp, Assistant Manager in the Entrepreneurial Tax team at Chiene + Tait, looks at the misconceptions you might have heard.

“We haven’t created anything new so we aren’t eligible”

This simply isn’t true: you don’t need to be breaking new scientific ground to qualify. R&D tax relief covers any project that seeks an advance in science or technology. As well as creating an innovative, state-of-the-art product, this can also mean simply improving upon existing processes. If you have:

  • Been working on something that has never before been attempted;
  • Tried to improve their existing products through technological change; or
  • Looked to find a more efficient way to work,

then you will likely have scope for an R&D claim.

“We have received grant funding so can’t make a claim”

Not correct. However, receipt of a grant does throw a spanner into the works. You can still make a claim, albeit the grant may limit the total tax credit/deduction that you will get back. The legislation around grants and how they interact with R&D tax relief is extremely complex, so I always recommend speaking to a specialist to ensure that you maximise your claim.

“But we aren’t scientists in lab coats”

R&D tax relief is available to all companies that attempt to overcome technological or scientific uncertainties through the use of untried and untested techniques. That means that companies from a range of different sectors could qualify for relief.  In the past 12 months, Chiene + Tait has worked with (but not limited to) companies in the following sectors:

  • Agriculture, forestry and fishing
  • Construction
  • Electricity and Gas
  • Manufacturing
  • Financial & Insurance

R&D tax relief really is available for all!

“It’s not worth the time to make an R&D tax relief claim”

But it is! Companies can receive a tax credit up to 33% of the total eligible expenditure incurred. So, if you spent £100k on eligible staff costs, you could receive up to £33k tax credit, cash in hand!

Granted, the rules and application process is complex and can seem daunting, but you can remove that hurdle by using a good adviser.

Here at Chiene + Tait, we make the process of claiming pain-free, preparing the report and claim for you so that you can focus on the important things. From the initial meeting to submission, our expert team will look to finish the report and claim within 6 weeks, meaning that, once approved by HMRC, the cash is in your bank account sooner!

If you’d like a discussion about whether you can claim R&D tax relief, or if you have any questions about it, get in touch with me at david.philp@chiene.co.uk.

Understanding Investment

In this blog, Kirsty in the Chiene + Tait Entrepreneurial Tax Team outlines the different types of investment available to entrepreneurs and how to access funds.

What is investment?

Investment is a two-way funding street – an investor will fund a business idea in order to help an entrepreneur on their journey in the hope that there is a return on their investment. An entrepreneur looks for investment to receive a cash injection to take their idea to the next level. Different companies have different requirements in order to develop an idea or scale up, and investors have varying appetites and interests.

It’s important to remember that giving or receiving an investment is a financial transaction and therefore there are rules, but also helpful reliefs (see our useful links below) available to make the most of funds.

The main types of investment we come across at Chiene + Tait are:

  • Equity – an investor provides funding for the company in exchange for equity in that company.
  • Debt – an investor loans money to a company, generating a return through interest on the loan alongside repayment.
  • Convertible debt – is simply a loan that can be turned into equity (share ownership), generally upon the occurrence of future financing.

Entrepreneurs can be easily bamboozled by different investment types and what they need to do after receiving funds – keep in mind that very little is given philanthropically i.e. for free, and you will need to give something in return.

 

Availability of funding?

More often than not the entrepreneurs I speak to see cash flow as one of the biggest barriers to growth, accessing funds to grow is an essential component of any start up or scale up. Apart from individual investors, there are other sources of investment funding available to start ups:

  • Incubators – this is a ready to go to space that has support and infrastructure available for start ups. Entrepreneurs should keep in mind that the incubator is itself an entrepreneurial venture; investors often pool funds to secure a large building and outfit the space with its own support team and everything needed for dozens of start-ups to engage in business. The incubator generates revenue by charging monthly rental-access fees to the tenant companies.
  • Angel Syndicates – this is where a number of investors pool their investment resources in order to have a greater pot available to invest in entrepreneurs. In order to access funds from syndicates, entrepreneurs usually have to attend syndicate board meetings and pitch for funds.
  • Scottish Investment Bank (SIB) – this bank was specifically created to increase the supply of finance to SMEs in Scotland. Grants and funding are available via SIB and Scottish Enterprise to support growth. The new Scottish National Investment Bank (SNIB), which will be completely distinct from SIB, was announced by the Scottish Government in September 2017 and will also provide new sources of funding for SMEs. The SNIB is currently the subject of a public consultation with further detail expected in the coming months.
  • Venture Capitalist (VC) – is a corporate investor who provides funds to, usually, later stage startups or scale ups.

 

Process

The process for getting funding varies, depending on the source of funding. A typical investment deal will go something like this:

  • Writing a business plan to use as a tool to outline your idea and demonstrate to investors how their funds will be used,
  • Pitching your company or business idea in order to get investors on board,
  • An initial offer is made using a term sheet, setting out expectations and valuation,
  • An investment agreement is drafted by the lawyers which may be subject to some negotiation,
  • The agreement reaches completion and the funds are transferred.

 

Top tips

So, you’ve got a plan of action and a set objective to achieve growth. But what tips can I give you from my experience to help you on this journey?

  • Practice your pitch – don’t go into a meeting with an investor without having a thorough understanding of your plan, the investment you are looking for and your exit strategy.
  • Assess the correct funding for your company – understand what investment type suits your current and future needs.
  • Sector specific investment – assess whether there is an investor or syndicate that specialise in your field, rather than approach a bank or general funder who may not be able to provide additional mentoring and key expertise.
  • Plan your timings – don’t think that everyone will want to throw money at your brilliant idea. At any one time there are hundreds of other brilliant ideas that investors are looking at. It takes a lot of time to fundraise.
  • Understand your costs – be realistic with your costs, an investor will want to see that you’ve thought through your plan carefully and fully. Any investment will be in you, in addition to your business idea and an investor will want to be confident that you can deliver the goods within your projected budget.

 

If you have any queries about understanding investment, feel free to drop me a line at kirsty.paton@chiene.co.uk or call 0131 558 5800. Alternatively, I’ll be at the Investing Women Ambition & Growth Conference 2018 running 1-2-1s and masterclasses. See you there!

Dave Philp in our Entrepreneurial Tax Team has also written a blog for startups called Are you missing out on Research & Development Tax Relief. To read this blog, watch his accompanying webinar or download his related infographic click here.

Are you missing out on Research & Development Tax Relief?

In this blog, David in the Chiene + Tait Entrepreneurial Tax Team highlights Research & Development Tax Relief and asks – are you missing out?

Scottish companies received over £165 million in Research & Development (R&D) tax credits last year. Yet a recent HMRC study showed a number of industries are still failing to claim R&D tax relief, when they could be eligible. I’ve produced an infographic on which sectors can claim the relief but traditionally don’t here.

There is a misconception that the relief is only available for technology start-ups or scientists in lab coats. This is just simply not the case, so is your company missing out?

What is Research & Development Tax Relief?

Research & Development tax relief is one of the most generous corporation tax relief currently available. The relief is a HMRC incentive designed to encourage innovation and increase spending on R&D activities, however, many companies incorrectly believe that they don’t qualify.

The relief can be extremely beneficial. Under the scheme companies can receive a tax credit or enhanced deductions to reduce their tax bill, that means £100k worth of qualifying expenditure can get you either:

  • £230k worth of losses (worth £44k @ 19% tax rate) to utilise against future profits or
  • £33.35k tax credit (cash in hand)

Essentially this means that if your company has tax to pay, you will pay less. If not, the Company will receive a tax credit.

What is R&D?

In the eyes of HMRC, R&D is a project that seeks an advance in science or technology through the resolution of scientific or technological uncertainties.

An advance in science or technology is an advance in the overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). This can also include a project that seeks to make an appreciable improvement to an existing process. In layman’s terms, if you are seeking to create something new or improve upon an existing process, it will likely qualify for the relief.

Even if the advance in science or technology sought by the project is not achieved, R&D still takes place. This means that costs relating to aborting a project could also qualify for R&D.

Available for all – not just people in lab coats

With such a broad definition, thousands of companies are missing out. Below are just a few examples of projects that have qualified for relief in the last year:

  • Creating a new recipe for a soft drink to adhere to the new sugar content regulations
  • Improving upon an existing manufacturing process
  • Creating a bespoke multi-functional piece of furniture
  • Building a software infrastructure that’s more efficient than its competitors
  • Developing an in-house Customer Relationship Management system

None of these are ’traditional’ R&D projects but all qualified for R&D tax relief. Some tips to keep in mind when considering if your project will qualify is to ask yourself the following:

  • Has a technological advancement been made?
  • Is the company working on something that has never before been attempted?
  • Has the company tried to improve their existing products through technological change?
  • Has the company found a more efficient way to work?

If your answer is yes to any of these then there will likely be scope for an R&D claim. Your next step should be to speak to an R&D specialist to determine the size of the claim and to ensure that you don’t suffer any pitfalls!

Chiene + Tait has a specialist R&D team that can help identify what can and cannot qualify for relief. In the past 24 months, we have successfully submitted over 80 R&D tax credit claims resulting in over £2.5 million being received by our clients, achieving a 100% success rate. If you would like to watch a webinar outlining these points, please visit the Chiene + Tait You Tube channel here.

If you would like a no obligation meeting to discuss R&D Tax Relief and whether you can apply, please contact me at david.philp@chiene.co.uk or call 0131 558 5800. Alternatively, I’ll be at the Investing Women Ambition & Growth Conference on 8th March and happy to chat further.

Kirsty Paton in our Entrepreneurial Tax Team has also written a blog about Understanding Investment. To read this article click here.

Iain Masterton in Business Insider Magazine: Crowdfunding is a grey area for HMRC

‘Iain Masterton, director of VAT and indirect tax at Chiene + Tait , says that businesses looking to raise finance via the crowdfunding route should carefully consider the VAT implications before going ahead.

He says that if the crowdfunding pitch includes the funders getting a product in exchange for their funds then the business might be liable to VAT – something that should be taken into account when working out the funding requirement.

Masterton says: “There is a problem because there is no definitive guidance on offer from HMRC, something that people could refer to without going to an advisor so it does make it a bit of a grey area.”

He says that if the product provided in exchange for the funding is something that would have been liable for VAT on the sale of the good then VAT will be levied. This will not be the case on VAT exempt products such as food and children’s clothes.

“It’s a fact for a lot of these businesses that they haven’t taken VAT into account and they are suddenly faced with a bill from HMRC for 20 per cent of the value of the VAT-able goods sold.”

He says: “We worked for a company that was crowdfunding a board game they were developing. They were trying to put together a Dungeons and Dragons type board game and they had commitments from the UK, EU and non-EU funders.

“They had commitments of £90,000 from the UK which meant that they immediately went over the £85,000 turnover threshold and they were liable to VAT. HMRC were very good about it and didn’t give them a penalty payment but it meant that they were due to pay 20 per cent and that was something they hadn’t taken into account in the financial calculations.”

Masterton says that if the crowdfunding is set up as a loan or if the investor received equity in return for their investment then VAT would not apply; only if goods are exchanged for the investment that are liable to VAT.

Despite recent uncertainties, including Brexit and the triggering of Article 50, alternative lending has seen a sustained period of growth in recent years. For example, peer-topeer lending by volume reached over £100m by the start of 2017 according to alternative funding news website altfi.’

To read the full article in Business Insider, visit their website here.

C+T Partnership aims to boost business angel investment

Accountancy firm Chiene + Tait has announced a partnership with Scotland’s business angel association, LINC Scotland, aimed at supporting its members and enhancing the level of investment into Scottish SMEs with strong growth potential.

Chiene + Tait will service a dedicated Business Angel Helpline, providing advice to Scottish angel syndicates on how they can best structure any potential investments and maximise available tax reliefs. For the last year, the accountancy firm ran an initial helpline trial where they assisted LINC’s members on a range of matters including pre-deal structuring questions, advice on EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme) and assistance on other HMRC matters relating to potential angel investments.

Going forward the Helpline will remain focused on ‘de-mystifying’ the whole process of becoming a business angel by promoting the tax advantages that come through this form of investment. Angel investment syndicates will be able to contact the service where they will get direct advice from Chiene + Tait tax experts.

The aim of this approach is to promote wider economic growth in Scotland by supporting and encouraging more high net worth individuals to invest in SMEs with strong growth potential.

Chiene + Tait Entrepreneurial Partner Neil Norman said: “We are delighted to formally launch the Business Angel Helpline to support LINC’s members and help demystify the process of maximising tax efficiency around business angel investing. In the initial trial of the Helpline, we were contacted by over 50 per cent of Scottish-based angel syndicates who successfully accessed valuable tax advice and other important information to enable them to maximise their investment.

“This support vehicle is helpful to business angels and is also beneficial in encouraging more investment into Scotland’s SMEs.  A UK Business Angels Association highlighted that 90 per cent of angel investors utilise EIS or SEIS tax relief schemes. By offering a service which draws on our experience to help investment deals complete smoothly with maximum tax reliefs, we can support the existing business angel community in Scotland and also promote this form of investment to other high net worth individuals.

“This is a positive development which has real scope to benefit the growth of Scottish SMEs and help entrepreneurs punch above their weight by encouraging more activity within the business angel investment community.”

David Grahame, Executive Director of LINC Scotland said: “The Business Angel Helpline has provided a valuable resource for our membership. We are therefore delighted to have Chiene + Tait’s support in extending the service in the longer term where members will continue to have access to their tax expertise when considering investments into Scottish SMEs. The firm has been extremely supportive towards our members over last year’s helpline trial and their on-going involvement will help enhance the work of our current members and help promote both the financial and economic benefits of angel investing.”