Corporate Tax For Innovators
A sound corporate tax strategy is vital to the innovative company. RDTR is only one piece of the jigsaw and here are a couple of our insights to help build the picture:
Shareholders and Business Owners
Shareholder tax planning is vital to the high tech company which can rapidly grow in reputation and value and quickly become desirable “Target” companies in their industry. Unless shares are in tax efficient ownership, unwelcome tax liabilities could arise. Stakeholders in the business might be rewarded in share options; these are a very tax effective way to retain and reward key employees. Provided these awards are HMRC compliant, this ‘remuneration’ can be entirely tax and national insurance free.
Did you know that: Since 06 April 2012, EMI options can qualify fully for entrepreneur’s relief, even though there is no shareholding period immediately prior to a company sale.
Employees and Contractors
Staffing costs are usually the bulk of an RDTR claim enabling 225% relief for salaries and national insurance and pension costs.
Many hi tech companies hire shorter term labour, often from outside the UK, reflecting uncertainty and scarcity. Unless proper contracts are correctly prepared, it is possible that the costs may not qualify fully for RDTR relief.
Did you know that …. The rules for Externally Provided Workers were relaxed substantially from April 2012, enabling more companies to capture costs paid to staff that are not direct employees.
Expanding Your Hi-Tech Company
Expanding the company’s activities will require a sound and responsive financial strategy, without a hefty tax charge! RDTR can often be lost unless any reorganisation is carefully structured, alternatively substantial RDTR may become available to profitable group companies through group relief, because of the extensive nature of UK RDTR reliefs.
Did you know that Substantial Shareholding Exemption can enable the sale of even 10% shareholdings to be achieved on a ‘tax-free’ basis.?
Selling Your High Tech Company
HMRC will look very closely at any Sale or Transfer Agreement. As well as the legal and employment considerations, the tax strategies will come high on the agenda. RDTR will almost certainly be extinguished upon a company sale, and it is vital to ensure that any surplus RDTR credits are fully utilised prior to the sale.
‘2011 was the strongest year for tech buyout’s since 2007, and many venture capital funds report a renewed appetite for tech, media and telecoms M & A activity. All key players on the R & D scoreboard.
Tax efficient venture capital
Tax efficient investment in your company can attain 78% for new capital, Tax Insight will ensure EIS applications comply with the stringent HMRC rules.
Patents & Corporate Intangibles
If you are considering patent or white labelling your work, you are not alone. The UK Patent Office has now streamlined the process. The tax regime affecting corporate intellectual and intangible assets is one of the most complex in the EU. Tax Insight can assist with this vital area and the new Patent Box opportunity.
Find out more here: http://www.ipo.gov.uk/types/patent/p-os/p-apply-online.htm
Intangible Assets and RDTR
Post FA 2002 intangible assets are increasingly important to innovative companies. Significant tax reliefs are available for relevant expenditure, but did you know that in certain circumstances there is the added benefit of further R D TR relief.
RDTR is an area of vital importance to software developers and companies carrying out advances upon in-house software. Did you know that UK R & D regime permits R & D relief upon intangible expenditure, even where expenditure is capitalised. This is a complex area, which HMRC frequently challenge; but overlooking these important costs can understate relief significantly, leaving money unclaimed.
Positive [and negative] goodwill valuations are often a key part of acquiring or selling a high tech company. The accompanying tax reliefs that are available should not be overlooked.
Did you know that……….Generally, UK Groups are free to transfer such assets on a tax-neutral basis; this principle continues during reorganisations, even where non UK resident members are involved. However there is anti-avoidance legislation to prevent members and sub-groups mutually leaving such a group with a tax advantage derived from such a transfer.
Did you know that……Sales and transfers of intangible assets created or acquired after April 2002 are completely outside the capital gains tax regime that was. But what of the high tech company divesting intangibles at a ‘loss’ or a substantial profit; the correct tax strategy will require careful consideration to make the most of significant reliefs for corporate intangibles which are available.
In the above environment, it is not surprising that the UK may almost have an aura of a tax haven for the innovator. HMRC Transfer Pricing regulations can affect the UK R & D performer company just as much as any other business sector. This is an area of tax that should not be underestimated, and which is within the HMRC Penalty regime. Subcontracting arrangements are a common feature amongst UK Groups with an R & D performer member. With a relatively ‘low’ employee limit for an SME transfer pricing exemption, the lack of TP documentation could undermine both the R &D claim and UK transfer pricing compliance where these are not conducted on an arm’s length basis.
The UK follows the OECD Transfer Pricing models for medium and large sized companies; the documentation of the adoption of a suitable model is a vital part of the UK Company’s tax and accounting records. The UK is unusual in adopting both a territorial and UK/UK policy; again a key consideration for the high tech group. UK branches and permanent establishments of non-resident companies are also brought into the regime.
Find out more here: http://www.hmrc.gov.uk/manuals/intmanual/INTM421010.htm (set aside a day or two!), or alternatively, call us.