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Everything You Need to Know About Claiming Tax Relief for Research and Development

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What are R&D Tax Credits?

How R&D Tax Credits Work

Benefits of R&D Tax Credits

Basic Eligibility Criteria

R&D Project Criteria

Qualifying Project Costs

Making a Claim

FAQS

What are R&D Tax Credits?

R&D Tax Credits are a form of tax relief set up by the UK government to encourage businesses to aid growth of the UK economy by investing in research and development. The idea behind the scheme is that businesses get rewarded for their innovation efforts, finding new solutions to their biggest challenges and improving/enhancing their products and processes. The desired result is that this will then accelerate growth, creating more job opportunities and increasing the value of the UK economy.

How R&D Tax Credits Work

R&D Tax Credits work by allowing businesses to make a claim to HMRC to obtain a tax relief for the money they have spent on qualifying research and development projects. However, R&D Tax Credits are more than just a standard tax relief – the amount of your approved claim can be paid to you in three ways:

cash payment,
deduction applied to your year-end Corporation Tax bill,
or a mixture of the two.

It is worth noting that the way in which you receive the relief is based on whether you are profit-making or loss-making. If you have made a loss, you can claim a cash payment. If you’ve made a profit, you can offset the value of your approved claim against your Corporation Tax bill. If the value of your claim is more than the CT due, then you can opt to receive the unused claim funds as a cash payment.

Benefits of R&D Tax Credits

The most obvious benefit of being able to make an R&D Tax Credit Claim is if you qualify, you are in effect, reclaiming some of the cost of your qualifying project. However, there are plenty more benefits which are often not realised:

You can make a claim every year – yes, that’s right. Every tax year, as long as you meet the criteria and your project qualifies, you can submit a claim.
You receive a cash payment if you make a loss – if, when your accounts are completed, you have made a loss for the year and there is no Corporation Tax due, you can opt to receive the value of your claim as a cash payment into your business bank.
You can reduce your tax liability – if your accounts have resulted in Corporation Tax based on profits made during the corresponding financial year, you can use the value of the approved claim to reduce the amount you pay. And, what’s more, you can also use the funds to settle any outstanding tax debt with HMRC.
You receive contributions towards vital innovations – most businesses are aware of what needs to change within their business and have ideas on how to do this. With R&D Tax Credits, businesses receive a contribution as such towards making these changes.
Grow your business due to the cash incentive to innovate – your business can continue to grow because the overall cost of the original project will be reduced when a claim is satisfied. This results in more cash available to invest in other areas – or indeed future R&D projects.
More freedom to test and research without wasting money – with R&D Tax Credits, you have a bit of a safety net. You can almost test the project first to see whether it will make a difference. For example, imagine you want to launch a new version of an existing product. You could just go straight in and invest in the development of loads of these products and the funds to bring them to market. But, thanks to the help of Tax Credits, you can invest in extensive research, testing and prototyping of the product and be rewarded with a tax relief for doing it. This is therefore stopping you from potentially making a costly mistake.

Basic Eligibility Criteria

Like most forms of Tax Relief and Government incentives, R&D Tax Credits comes with its own set of eligibility criteria.

To be eligible to make a claim, you must first ensure you are:

A limited company based and registered in the UK which is subject to Corporation Tax.
Not in receipt of state aid totalling more than £7.5million.
Not in receipt of grants totalling the full amount of your project.
Involved in projects which seek to resolve either a scientific or technological issue/uncertainty.

That being said, even if all of these criteria are met, you may not have your R&D Tax Credits Claim approved. Your project has to meet a specific set of criteria too.

R&D Project Criteria

Definitions

As we’ve already touched upon, for a project to be considered an R&D project, it must be part of a specific project designed to “make an advance in science or technology” and solve an uncertainty in either of this fields. This means not only does it help your business, but it aims to have a positive impact on your entire industry. This is why all projects you intend to claim for must relate to your own industry/trade or one which you intend to start up based on the results of your project.

For a project to qualify as R&D, it must also have results that haven’t been discovered already by a professional working within the same field. It’s fine if a competitor has done something similar, but if you have developed something which is significantly better and solves scientific or technological uncertainty, then the chances are your project qualifies for R&D.

Note, your project will not qualify if it relates to an advance within Arts, Humanities or Social Sciences – including economics.

Project Types

The government deliberately made the definition of R&D quite broad to allow for true innovation, but despite it being broad, there are generally two circumstances where a project becomes R&D:

Creating a new product, process or service – or attempting to
Making an existing product, process or service better – or attempting to

We note ‘attempting to’ as a project does not need to have a successful outcome to qualify as R&D, as long as there is justification as to how it tried to solve an uncertainty/make an advance.

Project Scopes

One of the most common difficulties we see arising is figuring out where R&D begins and ends. Often, people consider the start of a project to be when the idea is brainstormed and generated, but in fact, it doesn’t become R&D until the process of determining whether it could be successful has commenced. Similarly, the point at which R&D ends is commonly thought to be when the product or service is launched, however, the end point usually occurs just after testing, when the project is determined a failure or a success.

Project Activities

When we look at specific activities, the most commonly occurring in approved R&D Tax Credit claims are:

Prototyping
Testing
Production Trials
Process/Design/System development or evaluation
Planning – specific to the R&D project
Admin and support – specific to the R&D project
R&D project training
Market research, feasibility studies, research
Design analysis, adaption and optimisation

If you think back to the points on where R&D begins and ends, it will help you to decide whether a project activity you are undertaking will qualify.

Qualifying Project Costs

An important thing to note is that even if your project as a whole meets the criteria to be classed as R&D, it doesn’t mean every single cost associated with it can be claimed as R&D Tax Credits.

The table below lays out some of the most common costs you can claim for.

Software	The software you use during your R&D projects can be included in your claim. However, if this software is used normally within the business, you’ll need to make an adjustment and calculate how much of the software cost would cover the R&D specific usage.
Consumables	There are certain consumable items that you are allowed to claim for, such as power, water, hardware and materials etc. However, attributing these correctly to your R&D projects can be quite tough. HMRC has created an advice article detailing the rules surrounding consumables claims. Have a read!
Prototypes	Actual prototypes – not prototypes made for sale or commercial purposes – but prototypes made purposefully to try and resolve your scientific or technological uncertainties can be claimed for. It’s worth noting though that they can never in any circumstances be sold at a later date.
EPWs	Sometimes you may need to a enlist the help of a third-party company which supplies workers to you that can work specifically on your R&D project. If these workers only work specifically on the project, you may be able to claim up to 65% of the costs paid to the provider.
Costs for volunteers of Clinical Trials	Those in the pharmaceutical sector are usually required to conduct clinical trials as part of their R&D efforts. Obtaining volunteers for these trials can be costly, especially when it comes to first attracting the volunteers and then compensating them for their involvement.
Subcontractors	If you’re applying under the SME scheme, you can usually claim for 100% of the payments made to subcontractors. However, HMRC determines that to get 100% the subcontractors must be a connected party, otherwise, you can only claim 65%.
Staff costs	If you have employees who are directly involved with the R&D project, then you may be able to claim some of their costs. This includes their salaries, pension fund contributions, NI etc.
Research contributions	If you’re a large company which uses a third party to conduct research on your behalf which is directly related to R&D, then you may be able to claim for the cost of it. There are certain criteria that the third-party researchers must meet, so it’s worth checking the guidance beforehand.

NEW FOR 2023 – From April 2023, the government has announced it will be allowing for claims to include the cost of Pure Mathematics and Cloud computing and data. Further information can be found here.

Making a Claim

Choosing the Right Incentive

Before you begin to make a claim, you’ll need to establish the incentive that is right for your business. There are currently two incentives:

SME Tax Credit Incentive: An incentive for SMEs with less than 500 employees, a turnover of less than £100million or £86million in gross assets.

Research and Development Expenditure Credit: For those who do not meet the criteria for the SME Tax Credit incentive. Or those who do but they have other excluding factors such as grants and subcontracting.

In most cases, claims are made through the SME Tax Credit Incentive, so it’s likely that’s where you’ll fall if you’re making a claim. However, it’s worth consulting a specialist who can confirm before you proceed with making a claim to ensure unnecessary rejection is prevented.

Forms to Make a Claim

Claims for R&D Tax Credits are made on an annual basis via your Company Tax Return, but an additional file called the single iXBRIL computations file also needs to be completed. If you are claiming a payable amount instead of a tax deduction, you will also need to complete the supplementary form CT600L.

If your accounting period begins on or after 1 April 2023, you may need to also submit a notification to HMRC in advance of making a claim that you will be submitting one. You can check if this applies to you here.

From 1 August 2023, new rules come into effect stating that for every claim, additional information must be provided about the claim before a Corporation Tax Return is submitted. There’s a lot of information which needs to be provided, including details of each project and what makes them qualify as R&D. As an overview, you’ll need to:

Explain how your project looked for an advance in your field.
Explain how your project had to overcome the uncertainty.
Explain how your project tried to overcome uncertainty.
Explain how your project couldn’t have been easily done by another professional in the same field.

Of course this is a very general overview, so it’s worth spending some time reading the official guidance here https://www.gov.uk/guidance/submit-detailed-information-before-you-claim-research-and-development-rd-tax-relief.

Calculating The Value of The Claim

Rates

From 1 April 2023, the amount that businesses in the UK can claim as R&D Tax Credits has changed due to a decrease in the rates used in calculations.

Previously, under the SME scheme, there was a 130% deduction rate on costs for profit making SMEs against their tax liability, and loss-making SMEs could claim tax credits to the value of 14.5% of their R&D losses. Now, the deduction rate has dropped to 86% and the loss rate to 10%.

Those claiming via the RDEC scheme could previously claim 11p tax credits on every eligible pound they spent on R&D due to the rate being 13%, but now they will be able to claim more due to the rate increasing to 20%.

Expenditure

There are two types of expenditure you’ll need to calculate when making a claim. The first is qualifying expenditure, which is the amount which you are eligible to claim for based on the criteria and rules around what can be claimed. The second is enhanced expenditure, which is the enhanced amount of relief that you will be entitled to, based on how much you spent on R&D.

To calculate enhanced expenditure, you’ll need to:

Work out the costs directly associated with the R&D project you’re claiming for
Reduce any costs that were for subcontractors or external worker providers by 65%
Add the costs together and multiply by 85%
Add the 86% figure to the original amount of qualifying costs.

The final figure will be the value of your claim.

Making a claim is a complex process and one which must be correct at every stage. Any errors or attempts of fraud will result in an investigation by HMRC. That’s why we recommend always using a professional who has experiencing in the entire process of making an R&D Tax Credits Claim.

If you’d like assistance from our specialist team, please reach out to hello@shenward.com.

Frequently Asked Questions

How far back can I make an R&D claim for?

The current guidance states that R and D Tax Credits can be claimed up to two years after the end of the relevant accountancy period.

Is there a limit to how much refundable R&D Tax Credits I can claim?

From 1 April 2021, there is a cap on the amount of payable R and D Credit you can receive as an SME, which is £20,000 plus 300% of your total staff related tax liability in the same accounting period.

Can I claim if my project has not finished or has failed?

In short, yes. If you meet the eligibility criteria and your costs fall into the financial year you want to claim for, then a claim can be made. The scheme rewards innovation and the investment companies make for technological advancements therefore the intent matters and not the outcome.

Can a sole trader of charity claim R&D tax credits?

No, only limited companies liable to UK corporation tax can claim through the scheme.

Can I make a claim for an overseas project?

If the company is paying UK corporation tax the location of the qualifying R&D activity does not matter.

The non-domicile status entered the spotlight last month when it was revealed that Rishi Sunak’s wife had claimed non-domicile status.

However, despite the headlines and controversy surrounding her claim of non-domicile status, the truth is that is not a tax avoidance scheme.

Claiming non-domicile status is in fact something that should be considered if you are eligible. It is perfectly legitimate for those who meet the criteria, and with proper and optimal structures in place, has great benefits to the economy. Should the eligible non-dom person bring business to the UK, they are providing more employment, and with that comes more income tax paying citizens, thus helping the national economy, rather than deceiving it.

With that cleared up, here is all you need to know about the non-domicile status.

What is non-domicile status?

Non-domicile, or non-dom as it’s often referred to, is a tax status that allows people who were born in another country to only pay tax on their UK income.

The person is a UK resident, however, their permanent home – or domicile – is outside of the UK. With this comes the allowance to only pay UK tax on money that is earned in the UK, with any earnings made in different countries not being taxed within the UK – unless it enters a UK bank account.

There are two ways a person can become a non-dom.

If you are domicile of origin, meaning you were born outside of the UK, or if your father came from outside of the UK.

If you are a domicile of choice, meaning you are over 16 and choose to leave the UK and live in another country indefinitely.

What are the rules for non-dom status?

You do not have to pay UK tax on your foreign income and gains if they are less than £2,000 per tax year, and if you do not bring them into a UK bank account.

If those two clauses apply, you do not have to do anything, and can freely have a non-dom status.

However, if your foreign income and gains exceed £2,000 per year, you can either pay UK tax, and sometimes be able to claim it back, or claim the ‘remittance basis’. This means that you only pay UK tax on the income you bring to the UK, but you lose your tax-free allowances for income and capital gains tax and must pay an annual charge if you have been a UK resident for a prolonged period.

If you have been in the UK for at least 7 of the last 9 years you must pay £30,000.

If you have been in the UK for at least 12 of the last 14 years, you must pay £60,000.

This can be a very complicated claim, and it is imperative to receive proper financial advice from your accountant before making your claim to ensure you are both compliant with UK tax laws, and that you are choosing the right option for your personal circumstances.

What if I work abroad and in the UK?

If you work both in the UK and abroad, there are different rules to adhere to.

If you receive the foreign worker exemption, you do not have to pay tax on foreign income. To qualify for the foreign worker exemption, your foreign income from an overseas job earns you less than £10,000, with your other foreign income, for example, bank interest less than £100. Furthermore, your UK and foreign income will combine to be within the basic rate income tax band, and all of your foreign income will be subject to foreign tax.

If you qualify for the foreign worker exemption, you do not need to make an application to claim, so long as your incomes fall within the above remit.

Non-domicile Tax Planning

Non-domicile status is complicated, making it difficult for tax planning if you are unfamiliar with the details and laws in depth.

Planning the right route for your non-domiciled status in the UK can help you achieve significant tax savings whilst still remaining fully compliant with UK tax laws.

However, because the advantages are so clear, some bad apples do try to slip through the net, which is why it is imperative you take time and consideration to make sure you are doing everything right.

It is important to keep up with the laws and compliance, as your status may be subject to change year to year, especially the longer you take up continued residence within the UK.

Non-domicile status and Inheritance Tax

Of course, the issue of foreign income naturally arises questions of inheritance and how it may be taxed.

Ultimately, your foreign wealth is not subject to Inheritance Tax until you are domiciled within the UK.

People are advised to place their foreign wealth into a trust before they become domiciled to stop their wealth from being subject to inheritance tax. Once assets are placed in a trust, they are ring-fenced from Inheritance Tax.

Consult a non-domicile expert

We cannot emphasise enough how imperative it is that you consult a financial expert when looking at claiming non-domicile status.

Incorrect dealings with non-dom status’ can lead you to face severe repercussions, such as hefty fines or even a prison sentence, if HMRC deems your status to be fraudulent.

Experts are on hand to make sure you are handing over the right details about your status and making the correct payments based on your residential status and level of income.

We are happy to advise on your domicile status, get in touch today to see how we can help at hello@shenward.com.

The cost of energy has risen significantly in recent months and whilst there’s a heavy focus on how individuals will cope, business owners are also in need of answers as to how to manage rising energy bills.

As a business, you cannot just ‘switch off’ to reduce your bills. You have a responsibility to create a comfortable working environment for both employees and customers. So, you need an alternative way to manage rising energy bills.

The good news is, there are options for businesses looking to manage rising energy bills, meaning you may in fact be able to alleviate some of that financial pressure.

Let’s explore.

Check-in with your current energy provider

With prices rising, many providers are finding ways to work with their customers to retain their loyalty through this difficult period. You may be able to arrange an alternative payment plan to spread out the cost of your energy bills over an extended period.

Also, some providers do offer schemes or grants to help businesses facing hardship, so it’s definitely worth picking up the phone and seeing what your provider can do to help you.

Shop around for lower prices

Whilst prices are rising for all providers, it could be smart to shop around and see if you can reduce your energy bills by switching providers.

The commercial sector doesn’t offer price caps like seen in domestic energy, but because many providers offer perks to new customers such as newcomer discounts, it may still be worth shopping around to see what offers are out there.

Price comparison websites offer a comprehensive list of suppliers and their prices, but they are subject to change, so it is worthwhile checking different comparison websites.

Improve energy efficiency in your business

Improving your business’s energy efficiency isn’t only great for the environment, but the more energy efficient your business is, the less you will spend on your energy bills.

There are larger and more timely investments you can make to strive toward energy efficiency and lower your carbon emissions, which we will move on to, but in the meantime, there are quick and easy measures you can take to immediately alter your energy efficiency:

Reduce your thermostat by 1C: Reducing your thermostat by as little as 1C, can drastically improve your energy bill. Many buildings run at a higher temperature than necessary to work in a comfortable environment, and overheating is costly. The Carbon Trust found that increasing your thermostat by just 1C can in fact increase your bill by 8%!

Switch light bulbs: Old filament light bulbs are notoriously less energy efficient, but unfortunately many people are unaware of this. Particularly for businesses, where people may operate in buildings at all hours, lighting is a large proportion of your energy consumption. Making a simple move to LEDs or halogen light bulbs is much more energy-efficient, and lasts longer too, making them more cost-effective.

As well as considering switching light bulbs, it’s also important to switch off lights. Not all rooms need to be lit all the time. Bathrooms and utility rooms, for example, may only be used for a minimal portion of the day, meaning having them turned on is a huge waste.

Installing sensors is a great idea, or simply encouraging people to turn off the light when they leave a room will help reduce your business’s energy consumption.

No more standby: It’s easy to place equipment on standby when they are not in use. For example, putting computers on standby in the office overnight – but doing so is costly. Making sure everything is turned off after use is a good way to ensure no energy is being wasted. To put it into perspective, keeping a computer on overnight can cost a business £11 a year per computer, which for a larger office is a huge expense.

Seek Government support

Of course, we have already addressed that the government has not offered any immediate support to help with rising energy prices, but other grants and schemes are available that can in fact help fund energy.

Regularly check what grants are available in your area, to find out what additional support your business is eligible for. There are currently grants and schemes available across different regions to help with energy efficiency. For example, many regions such as the West Midlands, Suffolk, and Tynes Valley regions currently have respective grants available of between £20,000 and £100,000 to fund energy efficiency audits, as well as grants for the installation and purchase of works to aid in lowering emissions and energy consumptions.

New grants and schemes are added regularly, so checking to see what is available in your region could drastically help your business not only save money on energy bills but become more sustainable.

Visit the government website to search for options near you.

Lower carbon emissions

Energy efficiency is intrinsically linked to reducing carbon emissions. Though it is a long process in working to become a zero-emission business, it is something we should all be working towards collectively.

The government is actively incentivising businesses to reduce their carbon footprint in line with the UK’s goals to be net-zero by 2050. To help businesses work towards this goal, there is government assistance available. For example, many businesses can claim capital allowance when purchasing equipment which will help your business lower their carbon emissions.

This will not only help the environment, but they will seek to lower your energy bill as well as being more tax efficient.

We can help you too

We know that managing your energy bill is a stressful task, particularly because of rising costs across the board.

But as you can see above, there are many options you can take to help manage and lower your energy bill both immediately and in the future with investment.

At Shenward, we are always here to help, whether it’s to discuss overheads or to find eligible grants. Contact us today at hello@shenward.com to receive dedicated support.

Last week, Chancellor Rishi Sunak delivered the Spring Budget 2022 to the commons and as expected, it’s been widely reported on.

Amid rising inflation and cost of living, some of the points highlighted in his statement were highly anticipated – many had already speculated what Sunak would announce and hoped for good news to alleviate some of the financial burden put upon the British public.

But was everything announced really that supportive? And what does it really mean for businesses?

Let’s take a look.

National Insurance Contributions… To rise or not to rise?

There have been many calls for the chancellor to scrap the increase in National Insurance and Dividend Tax that was planned to be implemented from April 2022.

However, in the Spring Budget 2022, Sunak actually announced that the plan to increase both taxes by 1.25% points will still go ahead. And, it’s on track to become the norm as The Health and Social Care Levy at some point in 2023.

National Insurance wasn’t completely left out of the statement though, with Sunak announcing that the threshold for Class 1 and 4 National Insurance will increase from April 2022.
This means that the threshold for National Insurance Contributions will be £12,570, in line with the Income Tax Threshold – a slight improvement for employees.

Fuel Crisis help

Sunak acknowledged the rising cost of fuel in the Spring Budget 2022 and announced that the fuel duty will be cut by 5p per litre until March 2023.

Whilst this has been announced to help alleviate the cost of fuel that is ever rising, experts have warned that this will only help the British public if gas retailers do not use it as an opportunity to make more profit on the fuel – keeping costs high. We for one would like to see some regulations in place to ensure this doesn’t happen.

VAT for energy efficient equipment

Perhaps the most talked about announcement following the budget; homeowners installing energy efficiency materials such as solar panels, heat pumps, or insulation will see VAT cut on these items from 5% to zero for the next five years.

Support for businesses

Much of the statement focused on the cost of living and therefore was more relevant to personal income as opposed to businesses. However, Sunak gave certain insights into his plan for continuing to help businesses out of the unprecedented times they have faced.

The Chancellor announced that the employment allowance will be increased to £5,000 from April, up from £4,000. This will help businesses and sole traders with one or more employees who are liable for Class 1 National Insurance Contributions, in the hope of alleviating business owners’ rising liabilities. We’d certainly have appreciated additional measures being introduced for our clients. But perhaps the future holds further announcements?

Looking to the future

The Spring Budget 2022 put a greater emphasis on deferred plans set to take effect from Autumn, as opposed to this April. This suggests we must keep looking forward and hope that further opportunities and support will arise for businesses.

In other positive news, Sunak did announce his plan to cut income tax by 2024. The plan would cut the basic rate income tax to 19%, down from 20%. Whilst this appears to be a minimum cut, it could benefit 30 million people who could each save £175.

Furthermore, Sunak announced his intention to overhaul the Research and Development credits to help create a “new culture of enterprise”. The plans will seek to help incentivise UK businesses to innovate in a more globally appealing manner. Moving forward, data, cloud computing and pure maths will be eligible within the schemes. Again, this change is most likely to come into effect following the Autumn Budget.

Our reaction

As expected, the NI hike from April 2022 will be implemented however the impact will be largely offset by the increase in the NI threshold. This will mean that anyone earning less than £35k per year will pay less NI – which is around 70% of workers.

Those who earn more will see a tax rise, albeit smaller than expected. Employees earning £20k per year will see an NI cut of £180 instead of an increase of £90, which is positive.

Unfortunately, this relief does not extend to employers, whose payroll costs will increase by 1.25% of all salaries over £9,100 at a time when they are already struggling with labour shortages and wage inflation, raw material price inflation and the escalating cost of energy.

The 1% reduction in the basic rate of income tax before the end of Parliament, in our view, is largely political. There are several variables that need to land safely before this will be substantively enacted.

There will be significant additional spend on HMRC compliance activity, targeted in particular towards large and medium sized businesses. This is projected to raise £3 billion in extra tax over a 5-year period. However, under the badge of simplification and fairness, a review will be undertaken of tax reliefs and allowances – the implication being that some of these may be abolished. As a firm, we were not expecting any changes to the capital gains tax regime, but we were aware that a number of people were concerned about it. Fortunately, the 20% capital gains tax rate and the £1m Business Asset Disposal Relief limit remain intact for now, although this could be one of the reliefs that is ‘reformed’ to pay for the income tax cut in 2024.

Final thoughts

We know the immense pressure that businesses are under right now, especially amid the ongoing and upcoming changes.

The Spring Statement may not have been delivered with the business owner in mind, but with Sunak’s future plans outlined, we can continue to plan for the future with hope that support is on the horizon.

As always, if you require any support with these upcoming changes, do not hesitate to contact us at hello@shenward.com.

There is a lot of uncertainty surrounding finances, especially given the current circumstances. As a result, business owners and sole traders are naturally asking more questions.

With a number of key financial dates approaching, our experts have provided answers to this month’s frequently asked questions.

When does the furlough scheme end? What are the key changes in August and September?

The Coronavirus Retention Scheme, or furlough as we know it, has been extended until 30th September 2021. This means after this date the government will no longer provide financial contributions to employees’ salaries.

Until the end of August, the government will continue to contribute, but as of July 1st, this amount will begin to lower.

In July, contributions for hours not worked will lower to 70% of wages up to £2,187, and in August, 60% of wages up to £1,875.

In line with previous months, for hours not worked, employees are still required to receive 80% of wages up £2,500 per month.

This means, as of July 1st, employers will be asked to make a contribution of 10% up to £312.50, and 20% up to £625 from August until the scheme ends in September.

Should self-employed workers claim the 5th SEISS grant? How is this calculated?

The fifth and final Self-Employed Income Support Scheme (SEISS), is available to self-employed workers with lost income from 1st May to 30th September. This should be available to claim from “late July”.

To be eligible for the grant, you must have traded in the tax years 2019-20 and 2020-21 and have submitted your tax returns on or before March 2nd, 2021.

The criteria require you to either be currently trading but experiencing a lack of demand, or operating at a lowered capacity due to coronavirus, or be unable to trade due to current restrictions or measures.

Your 2019-20 self-assessment tax return will be assessed, and you will not be eligible if your trading profits exceeded £50,000. You should only apply for this grant if you honestly believe your income will take a hit in the given trading period (May-September).

Different to the previous grants, the upcoming fifth grant will be calculated based on how much your turnover was reduced between April 2020 and April 2021. Should your turnover reduction be 30% or over, you’ll be eligible to receive 80% of 3 months average trading profits, with a maximum available grant of £7,500. If less than 30%, you’ll be eligible to receive 30% of 3 months average trading profits, with a maximum available grant of £2,850.

How do I repay SEISS grants which should not have been claimed?

In the event that you realise you have claimed an SEISS grant without being eligible, or have become ineligible due to tax amendments, you must contact the HMRC. Generally, you should inform the HMRC within 90 days of receiving the grant.

If you realise you were not eligible at the time you applied for the grant, you should inform the HMRC online you need to repay some or all of the grant. After this you will be given the bank details to repay what you owe.

If following a tax amendment, you became ineligible you should tell the HMRC of the amendment using their online form. After which they will send you a letter confirming how much you owe and how to repay it.

Grants received between 6 April 2020 and 5 April 2021 can also be paid via the self-assessment tax return.

When is the next income tax liability due?

The next income tax liability payment is due on the 31^stof July

P11D- who needs it and when should it be filed?

A P11D is a form which is to be completed by employers who offer benefits. It is used to declare expenses and benefits given to employees which are not subject to PAYE tax, e.g., company car, medical insurance, beneficial loans.

The P11D form filing deadline is the 6^thof July.

Got a burning question? Reach out to us at hello@shenward.com

The UK tax system is complex, there’s no denying it. And with the introduction of various COVID relief funds of late, it’s become even harder for the everyday individual to get their heads around it.

The good news is, Tax Planning exists – and tax planning strategies for individuals can be created too.

You might be thinking “How can I possibly plan how much Tax I am going to pay?” Well, it’s possible, and we’re here to tell how.

What is Tax Planning?

Tax planning is quite simply the process of arranging your affairs – making a plan – in order to legally minimise tax liability.

You’ll notice we emphasised the word ‘legally’, and that’s because contrary to popular belief, there are several ways in which individuals can legitimately reduce the amount of tax they are or will be liable to pay.

How? By understanding the wide range of reliefs and provisions in the UK.

Why are Tax Planning strategies important for individuals?

Tax Planning strategies for individuals are important. FACT.

They enable you to take advantage of opportunities which minimise your tax bill without breaking any rules or being deceitful.

Developing a tax plan and sticking to it will mean you get to keep hold of more of your finances to either invest or spend. There are times when you are starting a new business, acquiring or disposing a business, or even property, plant & machinery, where careful planning will be required.

AGRESSIVE TAX AVOIDANCE AND TAX EVASION ARE NO GO AREAS

Aggressive Tax Avoidance

Aggressive tax avoidance has and always will be a bit of a grey area. Of course, it’s frowned upon by the government, but the final decision is always made in court and a court hearing must take place.

Why? The courts need to determine whether there is manipulation of the law in a way that doesn’t represent the government’s tax intentions. It’s worth noting that if you’re ever in a situation whereby you’re unsure of whether your actions will be classed as tax avoidance, seek professional advice. HMRC will not take it lightly if found to be avoiding tax, and you’ll end up having to pay the full amount of tax which would have been due, PLUS INTEREST.

We discourage clients against aggressive tax planning or tax avoidance schemes. We ALWAYS advise clients to avoid taking advantage of tax legislation for which it was not designed for, i.e. promoting HMRC’s anti-avoidance legislation wherever it arises.

Tax evasion

Tax evasion refers directly to an individual who deliberately avoids paying their tax. They are classed as being non-compliant with the law regarding payments, nor the policies.

As you can imagine, tax evaders deliberately break the rules to ensure that they don’t pay the correct amount of tax. Usually, it involves misrepresentation or concealment of the true state of finances to the authorities. TIP: Tax evasion is a PROSECUTABLE OFFENCE, so don’t be tempted. Failing to declare your full income or hiding tax assets just aren’t worth it.

At Shenward, we act for clients who may face HMRC inquiry under their most serious line of enquiry, Code of Practice 9. We have a successful track record in advocating clients’ positions to achieve an optimal outcome for all parties.

Tax Planning Recommendations

Now we get down to business. By now, you’ll understand that tax planning is legal, but that doesn’t mean to say you shouldn’t seek professional support. To give you an idea as to whether you could benefit from tax planning support, we’ve outlined our ideas and recommendations below.

Income tax ideas and recommendations

Can you exchange part of your salary for benefits?

Exchanging part of your salary for tax free benefits is extremely valuable to those close to the higher tax threshold – between £100,000 and £150,000. Opting for tax efficient benefits can help you reduce your salary to under the threshold and is completely legal.

It’s important to note that since April 2017, the number of tax-free benefits on offer has significantly reduced, so you’ll need to ensure you’ve done your research. Examples of tax-free benefits include cycles for commuting and childcare vouchers – some even opt for onsite nurseries.

2. Can you take advantage of the dividend allowance?

Company owners paying themselves a salary can be tax efficient if they take advantage of the dividend allowance. The tax-free dividend allowance currently stands at £2,000. This means you can take £2,000 from your company every year outside of your salary without paying tax on it. Anything more than that is taxed based on your income tax band:

Basic Rate 7.5%
Higher Rate 32.5%
Additional Rate 38.1%

3. Can you restructure your buy to let portfolio within a marriage?

Married couples have an added advantage when it comes to income tax. Where property is involved, if one member of the couple is a basic rate taxpayer and the other a higher rate taxpayer, it would make sense to ensure that the basic rate taxpayer should receive taxable rents. However, it’s a complicated process and if not managed correctly, you can end up wiping out the savings with other taxes triggered.

4. Can you incorporate let properties into a ltd company?

In certain circumstances, it may be beneficial to form a limited company to manage the property let portfolio. There are several advantages to incorporating your portfolio into a limited company; namely enabling mortgage interest relief which is tax deductible, taking advantage of lower tax rates (corporation tax at 19% and dividend tax at 7.5%), and future planning i.e. passing down wealth to your family. Taking your non-minor children into this company and gradually reducing your own involvement/ownership can be very tax-efficient in passing down your wealth.

There are several drawbacks though, such as capital gains tax which is payable upon transfer of properties, and it is unlikely incorporation relief would be available. Transactional costs such as stamp duty, legal fees, borrowing costs are also payable. So, it is vital to plan ahead. An alternative option could be the implementation of trusts. Which would help mitigate inheritance tax upon your death. This requires a detailed assessment of your current portfolio to determine whether this is a viable option.

5. Have you got a spare room you can rent out in your house?

Yes. There is such a thing as a ‘rent a room’ relief, and it’s been around for many years. The relief allows homeowners to rent a room for a value of up to £7,500 per annum before paying tax.

Carry back ideas and recommendations

Can you use past capital losses?

Capital losses are carried forward indefinitely, so make sure you’re aware of the process and speak to your accountant.

Are you using your annual exemptions?

In tax year 21/22 everyone is legally allowed to realise a capital gain up to the annual exemption threshold of £12,300. Whilst it’s available during the year, if not used, it cannot be carried forward.

Can you use Investors Relief?

These are available to businesses and those with shares in personal companies only and cover holdover relief and rollover relief.

Are you eligible for Business Asset Disposal Relief?

Formerly known as Entrepreneurs’ Relief. Previously each individual had a lifetime limit of £10m gains at which they pay a flat rate of 10%, as opposed to 20%. Lifetime limit reduced to £1m in 2020 Budget. It is still a very lucrative relief for those eligible businessmen/women and shareholders, provided the criteria are met.

Can you utilise your spouse’s annual exemption?

Transferring 50% of the property before sale to a partner would mean it was treated as though your spouse was a joint owner from when the property was first bought.

Can you claim relief when you sell your home?

Usually exempt under Principal private residence rules. If you let out your previous home and live elsewhere – you can claim PPR for the time you lived there.

Inheritance tax ideas and recommendations

Can you switch your assets?

Inheritance Tax is always payable on the value of your estate if it exceeds £325,000. The good news is business assets and agricultural land have IHT exemptions. It’s always worth asking yourself whether you can switch your existing assets to things such as shares in private trading companies, or even agricultural assets as an example.

Why not leave your family home to a dependent?

In the tax year 21/22, there is an additional Inheritance Tax nil rate band of £175,000 when a property belonging to a deceased loved one is left to a dependent – dependents are classed as biological, step or adopted.

Why not make charitable gifts in your will?

Many people naturally want to leave part of their estate to charity when they pass but doing so can also reduce the need for your family to pay Inheritance Tax. Leaving at least 10% of the net value of your estate is usually the way to go. However, where the estate value is high, a reduced rate of 36% is charged where 10% or more is left to charity.

Can you take advantage of equity release plans?

If you’re aged over 55, there are a numerous equity release plans available to free up funds for multiple purposes. It works by using the value of the home to release a lump sum, which is only paid back when the homeowner goes into long term care or passes. The benefit is that the homeowner can still continue to reside in the home.

When did you last update your will?

Many people make a will and then never look back over it. Regularly reviewing your will as your family and financial circumstances change will help you understand what Inheritance Tax your family may be liable to pay.

Consider leaving your ISA to a spouse/civil partner

Income and capital gains received through an ISA are tax-free throughout their lifetime, but when you pass, the value is added to your estate and becomes subject to Inheritance Tax. But, if you leave the ISA to your spouse of civil partner, they can’t legally be charged Inheritance Tax – gifts between spouses/civil partners are exempt.

Contact us to talk through your tax planning strategy

Over the years, we’ve supported hundreds of people with their tax planning strategies, ensuring they are always acting legally and in line with HMRC regulations. If you’d like to find out how we can help you, please get in touch here.

A specially created shopping list covering everything you’ll need for outdoor trading in hospitality.

As of Monday 12^th April, restaurants, bars, cafes and other food and drink establishments were legally allowed to reopen their doors to customers on the proviso that guests were seated outside and were served at their table.

For many in the hospitality industry, whilst this was good news, it came with an added cost. Those who hadn’t previously had an outdoor area needed to not only apply for a licence to trade outside, but invest in new furniture, safety equipment and more.

The good news is, those in Bradford are now able to reclaim some or all of those costs thanks to the introduction of the Bradford Council Outdoor Trading Grant.

AND, with applications open until 31^st May, those who haven’t yet made their purchase, still have time to do so.

As purchases must be made before applying, we’ve created a dedicated shopping list covering everything you’ll need to offer outdoor dining and drinking, all under the £1,500 allowance and terms of the grant.

Outdoor Trading Shopping List

Whether you’re a bar, restaurant, café or other establishment, the environment you create for your customer must be right or you run the risk of losing out on their valued custom. So, let’s explore how we can create the perfect environment.

Tables

https://www.diy.com/departments/agad-wooden-picnic-bench/1573263_BQ.prd

Shelter

Next on the list, presuming you haven’t blown the budget on the wooden tables, is a shelter to protect your customers from the rain – we are in Britain after all.

Tong Garden Centre has this handy pop-up gazebo, perfect for outdoor drinkers and diners. At just £269, it’s a bargain!

https://www.tonggardencentre.co.uk/shop/products/parasols-and-gazebos/got-it-covered-pop-up-gazebo-grey.html

Or, perhaps if you need a couple, you could opt for B and M stores budget option coming in at just £80.

https://www.bmstores.co.uk/products/garden-party-marquee-6-x-3m-36673

Menus

Paper menus are the safest way to minimise the spreading of germs. Sure, you can clean down plastic menus, but why not opt for the safe option and get paper menus you can shred and recycle after use.

There’s a number of options we’ve found:

For just £60, you can purchase 250 menus in colour printed on both sides at Print Bradford https://www.printbradford.co.uk/

Or, if you want to put in a bulk order, why not head to Cheap Print Online where you can buy 10,000 for just £349

https://www.cheapprintonline.com/.

Sanitiser

COVID-19 hygiene practices must still be adhered to, so why not make it easier for guests to follow with the introduction of more outdoor sanitisers?

They come in at just £125+VAT each over at Sign Holders

https://www.sign-holders.co.uk/virus-protection/hand-sanitiser-solutions/foot-operated-hand-sanitiser.html

Barriers

If you’re planning on using space on council land, such as outside your property and not on within enclosed gardens, barriers are a must. We found these cute little barriers over at Nisbets, which come in a variety of colours and cost just £81. 58

https://www.nisbets.co.uk/bolero-black-canvas-barrier/cf137?cm_sp=Peerius-_-productRecsTop-_-image.

Lighting

Lighting is essential for those late-night diners and drinkers. Whilst there are many affordable options, we love these lights at B and M coming in at just £10 each.

https://www.bmstores.co.uk/search?query=outdoor+lighting

These are just a few of the items we’ve found, but if you’re a local business and you’re selling similar items which could be of use, please feel free to let us know and we’ll include your items.

About the Grant

The grant has been introduced by Bradford Council for Bradford postcode businesses only. Under the scheme, the council is offering local businesses in the hospitality and visitor economy sectors additional new support to cover costs associated with reopening.

Up to £1500 is available to help local small businesses pay for outdoor furniture and equipment which many have purchased to allow them to open under the recently relaxed restrictions. Along with the authority’s new pavement extensions, the Outdoor Trading Grant is designed to assist businesses to operate in Covid-safe open air trading spaces.

Terms and conditions

To be eligible for the grant, you MUST already have or be approved for a licence to trade outside. If you don’t have one, you can apply online here www.bradford.gov.uk/business/licensing/terms-and-conditions-for-an-outdoor-seating-licence.

Any items being claimed for MUST have been purchased already and you’ll need to have the receipts to prove this. Please note, items must have been purchased after February 1^st, 2021.

The Grant cannot fund indoor furniture, outdoor heaters, crockery, cutlery, table linen, glasses, cooking equipment, refreshments, staffing and running costs.

As always, our friendly team is on hand to support with any questions or the advice. Please contact us via the contact us form or email hello@shenward.com.

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This week as part of our ‘meet the people behind Shenward’ series, we caught up with Olivia from our Leeds office to gain insight into why she chose to be an accountant, her life inside and outside of Shenward, and who her dream celebrity client would be.

Tell us about your role at Shenward?

It’s great, I love the variety. Working in the Audits and Accounts department means I primarily spend my time completing client facing work and company secretarial duties. Some days I can have my head stuck into preparing financial statements, other days I will be completing and filing Corporation Tax returns, VAT returns and self-assessment returns. Each year, I also get the opportunity to complete multiple audits for our clients, which I love.

What inspired you to become an Accountant?

There are a few reasons really, the first being that it runs in the family. Both my mum and my grandparents are accountants, so you might say it’s in my DNA!

I also recognised it would be a great career in terms of stability and the fact that whilst on the job you develop a good understanding of what it takes to run a business and the taxes involved, which will be useful wherever I go in life.

What first attracted you to Shenward?

I was instantly impressed by the fact that the Leeds office had a small team. I felt it was possible to really get to know your colleagues because of this. The beauty was, despite it having a smaller team, Shenward still offered the training I needed to get qualified.

During the interview when I learned that my role would involve so many different tasks and responsibilities, I knew it was the role for me. The variety is what keeps an accountant’s job interesting.

What’s a typical day in the office like?

From a work perspective, that’s hard to define. No day is the same in terms of the work I need to do due to the differing client we have on our portfolio. Typically though, the office atmosphere is relaxed, so we are able to chat but also get our heads down and work.

If you weren’t an Accountant, what would you be?

I enjoy working with computers, so maybe something in IT. I’d also like to be an author because I love writing!

Tell us about who Olivia is, what do you enjoy doing etc?

In my free time I enjoy creative writing and playing video games. Family and friends are important to me, so I prior to covid, I would enjoy spending time with them. It’s certainly been difficult over the last year.

Which celebrity would be your ideal client?

Tricky one! They would need to be funny and easy-going, so maybe Dara O’Brien or Bill Bailey.

Funniest moment in your career?

Hard to pinpoint actually. I think the funniest moments come from conversations with my colleagues. We all get on really well, so days are never dull chatting with them.

What one piece of advice would you give to business owners reading this?

Tax planning is EVERYTHING, so make sure you pay attention, it could save you a lot of money!

If you’d like to join Olivia and the rest of our amazing team, please email Sherad@shenward.com to find out more about our current vacancies.

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Lockdown 3.0 came hard and fast just a day after most businesses returned to work after the Christmas and New Year break.

Businesses hoping for better times with the turn of the year were left disappointed and ‘non-essential’ shops hoping for a boost from the January sales were forced to close. Overnight the traditional ‘Happy New Year’ refrain seemed to stick in the throat somewhat.

The Government was quick to announce a new £4.6 billion package of financial help aimed at keeping businesses afloat until the Spring but for many that still won’t go far enough.

What the Government is offering is a good start but many firms are on the brink, even with furlough extended to the end of April.

There is only so long a business can sustain itself without any actual trade and the stop-start nature of the Covid-19 restrictions ramps up the pressure on businesses already under extreme stress.

Chancellor Rishi Sunak will look again at help for businesses in the Budget on March 3 but until then businesses should look closely at what is available.

Here we look at the financial support that it’s still not too late to claim.

What is the National Lockdown Grant announced on January 5 and who’s it for?

One-off top ups for retail, hospitality and leisure businesses who are legally required to close;
Those with premises with a rateable value of £15,000 or less can claim £4,000;
Those with rateable value between £15,000 and £51,000 can claim £6,000;
Larger businesses with rateable value greater than £51,000 can claim £9,000.

Coronavirus Job Retention Scheme (known as ‘furlough’)

It’s been around a while now but there are strict deadlines for claiming. Currently the Government will pay 80% of employees’ usual wages for hours they do not work up to a maximum of £2,500 per month.

The deadline for claiming for furloughed employees in December is January 14, for January it’s February 15.

The scheme is open until April 30.

Deferring VAT

VAT-registered businesses which had a VAT payment due between March 20 2020 and June 30 2020 can defer payments until March 31 2021.

Statutory Sick Pay Rebate

You can reclaim Statutory Sick Pay paid to employees off sick, self-isolating or shielding because of Coronavirus. It covers up to two weeks for eligible employees.

The company has to be UK-based and have had fewer than 250 employees since February 28 2020.

Christmas Support Payments for Pubs

If your pub was in Tier 2 or Tier 3 between December 2 and 29 2020 you may be eligible for a payment of up to £1,000.

The pub must be in England and have less than 50% in revenue from food sales.

Apply to your local authority before January 31 2021.

Business Rates Holiday for Retail, Hospitality and Leisure

Business rates have been waived for 2020-21 for retail, hospitality or leisure businesses. You should receive this automatically through your local authority if your business is eligible.

Coronavirus Business Interruption Loan Scheme

UK businesses can access loans of up to £5 million, as long as they have a turnover of less than £45 million a year.

They need to be considered viable by a lender if it was not for the pandemic and have been negatively impacted by Coronavirus.

The scheme is open until March 31 2021.

Coronavirus Bounce Back Loan

Small-medium sized enterprises and the self-employed may be able to borrow between £2,000 and £50,000, interest-free and repayment-free for the first 12 months.

Businesses must be UK-based, established before March 1 2020 and negatively impacted by Coronavirus.

The scheme is open until January 31 2021 and loans can be topped up to the maximum.

Time to Pay Service to Ease Tax Burden

HMRC offers a Time to Pay service for businesses struggling to meet their tax bill on time. Contact HMRC to see if your business is eligible.

Local Restrictions Support Grant for Businesses Forced to Close

Grants may be available from your local council if all or part of your business was closed by law at any time between August 1 and November 5 2020 or after December 2 2020.

Your business must have been in Tier 2, 3 or 4 and you can claim for each 14-day period your business was closed for. How much depends on the rateable value of your property.

Local Restrictions Support Grant for Businesses that Stayed Open

If your business was in a Tier 2 or 3 area between August 1 and November 5 2020 and stayed open you may have a claim.

You will have to show your business was negatively affected and payment is based on the rateable value of premises.

Additional Restrictions Grant

Local authorities were given extra money for businesses impacted by local restrictions.

Local authorities will decide who is eligible and for how much. Businesses which could benefit are those supplying a sector forced to close or if your business is in the events industry. It’s worth checking with your local authority about what’s available.

Self-Employment Income Support Scheme

The scheme is open for the self-employed to make a third claim – a taxable grant worth 80% of annual monthly trading profits, capped at £7,500 in total. Only those eligible for the first two rounds are eligible again.

The claim for a third grant runs from November 1 2020 to January 29 2021, and must be made on or before January 29 2021.

There’s a lot to take in but there’s more information on how to claim on the Government website www.gov.uk where you can enter in specific details about your business and see what’s available.

Just be aware of the deadlines because when it’s gone, it’s gone!

If there’s one thing we can agree on, 2020 has been a strange and difficult year for most. As 2020 comes to an end and we step into the new year with haste, now more than ever is a crucial time to start to plan for the year ahead.

There are many political and economic factors that will need to be accounted for when planning, as well as keeping a close eye on competition and sector specific trends.

Before we get started, first things first… what exactly is a business plan and why is it beneficial to my business to have one?

What is a business plan?

A business plan is a roadmap for your business. It helps business owners see the bigger picture when it comes to planning and helps guide them to success. When owning a business, planning ahead is key to successful business decision making, after all you wouldn’t start a journey without checking out the best route before you set off.

Why is it important to have a business plan?

With recent research showing nearly half of small businesses fail, it’s key to plan and understand your sector.

Understanding your position in the market and planning for every eventuality is often key to a successful business. It’s important to lay out your business’s objectives and plan for where you see yourself heading, while putting in milestones to hit along the way will allow you to track success as your business grows and develops.

The main reasons business owners have a business plan is to help aid critical decision making, they help reduce risk, secure financial support from investors, set benchmarks and measure success, and plan for economic and government implications.

But where do you start when formulating a business plan in 2021?

As we know 2020 has been like no year before, so there are a few areas which need to be considered when planning for 2021, here are a few to bear in mind as we look at the year ahead:

Be prepared for a stricter lockdown if infections increase after Christmas. You will need to plan for how this affects you operationally and think about the impact on budget
Be prepared to plan for staff return to work after furlough ends in March 2021, there may be increases to overheads that need to be considered
Do not assume that the furlough bonus of £1k per employee will be reintroduced, again these are potential increases to overheads that will need to be considered for later down the line
Does IR35 impact you? You can find out the ins and outs of how this affects your business here: https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
Does reverse charge in CIS impact you? You can see how your business is affected here: https://www.gov.uk/guidance/vat-reverse-charge-technical-guide
Marketing, sales strategy – consider any opportunities following Brexit. You can see tips and advice on planning for Brexit in our earlier blog here

If you’re looking for further help with where to get started with your business plan for 2021, we have a whole host of experts, specialising in different sectors who are happy to advise you as we head into another potentially turbulent year. Click here to contact us