Managing tax efficiencies

Now the dust has settled on the announcements made in the recent Budget, Rob Wardle, Senior Tax Director, looks at key tax planning for both your business and your personal affairs, to ensure you are maximising your tax efficiency.

Research and Development

In addition to a commitment of additional funds to ease the administrative burden of claiming R&D tax relief and making it more accessible to businesses, the Government announced a change that will impact large businesses and SMEs receiving grant funding; with effect from 1 January 2018, the rate of Research and Development expenditure credit will rise from 11% to 12%.

Surprisingly though, despite the Government’s stance on SMEs being the engine room of the UK economy, there were no changes around the R&D relief for SMEs. This does continue to be a very valuable form of tax relief, even though its value will be somewhat reduced with the rate of corporation tax reductions that are taking place over the next couple of years.

There also continues to be a misconception in the SME market around the businesses that are able to claim R&D tax relief, with many assuming it is the technology-led businesses that are solely eligible. In a recent HMRC report, it stated that more than 30% of all claims are from businesses trading outside of what are deemed the ‘usual’ R&D-eligible sector, with industries as diverse as retail, construction, packaging and software all taking advantage of the tax relief available. In fact, the definition of Research & Development is so wide and the activities that can be considered under the relief so varied, it is very difficult to spot an opportunity and determine eligibility to make a claim purely based on a business’ operating sector. Our specialist R&D team has supported many businesses in making successful claims, so get in touch.

Income tax planning

The Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) both remain useful  tax planning tools for high net worth individuals to maximise tax efficiencies. In certain cases, these tax breaks can provide significant tax savings, and are often used as part of a wider tax mitigation strategy. These reliefs have been made even more attractive by the changes which will come into effect on 6 April next year, when the annual allowance for those investing in knowledge-intensive companies will be increased from £1million to £2million and the amount of tax-advantaged investments an eligible company can receive increased to £10million a year, providing greater opportunity for investors. Following the Patent Capital Review, there were concerns that the EIS and VCT schemes would face major restrictions, however, the changes that were announced are mostly positive and should help these innovative companies grow.

Company cars

As part of the Government’s plans to improve air quality, two measures were announced to incentivise the use of electric cars.

First, there will be no benefit in kind charge if employers provide workplace electric charging points for electric or hybrid vehicles for their employees. This will apply from April next year and is part of the Government’s wider plans to invest in an electric charging infrastructure to support the transition to zero emission cars.

The second measure is a rise in the diesel supplement used in a company car and car fuel benefit calculations. This supplement will increase from 3% to 4% from April 2018 for cars which do not meet certain standards. The charge will not impact on diesel vans and the diesel supplement does not apply to hybrid cars.

Employers may want to use these changes as an opportunity to consider the type of vehicles they offer to employees.

IR35 reviews and employee work status

As widely expected, the Government announced that there will be consultation of reforming the off-payroll working rules (more commonly referred to as IR35) for those contractors operating in the private sector.

This follows on from the reforms introduced in April this year for engagements in the public sector whereby the decision about a contractor’s employment status, together with the liability for operating tax on the contractor’s fees, moved to the public sector body.

The Government stated that “public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company”.

The consultation document is expected to be published in early 2018. Those individuals who are currently contracting in the private sector, via their own personal service companies, should be watching this area with interest.

The Government has also announced that it will be publishing a discussion paper to “explore the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer”. This is a complex area and is recognised as such by the Government, which has vowed to “work with stakeholders to ensure that any potential changes are considered carefully”.

For more information on any of the issues raised in this update, or you would like to talk to us about how we can help you plan for tax efficiency, contact our tax team.


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