Tax Breaks for UK Start-ups – All You Need to Know

hacktrain800 thumb800 - Tax Breaks for UK Start-ups - All You Need to Know

Who does not love a little extra moolah making its way back into his wallet? There are reasons that governments design tax schemes that vary across diverse industry verticals. You could be a start-up that has dished out thousands of pounds in capital investment.

The average length of time for a new business to achieve break even is a minimum of five years. Office expenses, employee salaries, cost of goods etc all take a toll on the young firm. It bears an adverse impact on the general liquidity of the firm. To facilitate the start-up’s cash flow, central authorities in the United Kingdom have crafted tax refunds to help ease its short term burden. 

Unknowingly, tax financiers have over-compensated and given out more than what is required from their tax brackets. HM Revenue and Customs may not even be aware that it may owe you a fresh rebate. As a frequent occurrence, the due funds drown in the sea of bureaucratic paperwork that has become a regular feature of government run branches.

This can also happen as the tax payer has not applied for the claim for specific articles. Perhaps, the particular claim necessitates an in-person appearance of the applicant and is not an automated process.

It is essential to be aware of your rights and your tax entitlements.  However, according to Quick Rebates, the good news is that the United Kingdom government has deployed some tax schemes in favour of young business ventures.

The SEIS Scheme

The Seed Enterprise Investment Scheme is going to be one of your best friends in the world of regulatory economics. Launched as part of the Finance Bill in the year 2012, it provides notable tax relief for capital injections into start-ups.

In order to qualify for this tax program, commercial entities must not possess assets worth more than £200,000 and not have a workforce of more than 25 people. Investors may only maintain a thirty percent share in the overall ownership of the company. Some of its features include:

Carry Back Tax Refund: If your company matches the criteria required to be an SEIS qualifying entity, then you can file for a tax benefit for the amount tantamount to those specific shares that you procured the preceding year.

Essentially, this means that if you did not have SEIS related assets, you can invest £200,000 (£100,000 max per business) and save £100,000 (50% of £200,000) on its tax-given that there is tax to refund.

Tax Exemption on Capital Gains: If you sell your start-up after a period of three years and earn a capital benefit, it will be tax free. This is the most significant characteristic of the Seed Enterprise Investment Scheme and the chief incentive to ensure that your shares qualify under the its umbrella.

Claims on Inheritance Tax: Provided you retain ownership of your firm for a minimum of two years, any inherited investment that you made to get it off the ground will be 100% free from the systematic, regular laws of inheritance tax.

Initial Investment Tax Rebate: Up to a capital injection of £100,000, you are entitled to fifty percent rebate.

The EIS Program

The Enterprise Investment Scheme, also known as EIS, was introduced in 1994. It was established as a methodology to encourage high net individuals to place their funds in early stage businesses that may reflect a greater degree of risk versus other potential investment projects.

Start-up companies can capitalize on this and build their pool of prospect investors as they can provide tax rebate options. Not only that, they can serve as a means to allow their current angels to obtain significant tax claims as well. The laws under the Enterprise Investment Scheme program were changed recently to benefit the tax payer even more.

First, a company with EIS shares could not recruit more than fifty employees. This number has now increased to one hundred and fifty people. EIS businesses were previously allowed to own gross assets that were tantamount in value to £7 million only. This has more than doubled in value and gone up to £15 million.

When a company falls under the Enterprise Investment Scheme category, stakeholders are given income tax refunds that correspond to the amount they procured shares with. Also, if the EIS powered shares are sold at a price lower than the initial investment quantity, they can apply for a loss advantage.

This will lower the tax volume even further. In the year 2011, the amount of income tax rebate increased from twenty percent to thirty percent-thanks to Chancellor George Osbourne. Nesta, a UK based charity with global operations, engaged in a survey with angel investors. It was discovered that at least eighty percent of the respondents had ploughed their funds in start-up firms through the EIS route.

The sum of investment via EIS differs from industry to industry and tax benefits under this can range up to £500,000 within one tax year. The maximum refund is £2 million. In the year 2008-2009, the construction sector reported a tax rebate of £13 million whilst technology start-ups gained back £123 million.

It is important to know when you can generally obtain tax breaks as well.

Work clothing: Labourers and workers pay for the cleanliness and maintenance of their own uniforms. HMRC acknowledges the costs involved and has implemented reforms to account for this.

Transport Expenses: Some employees have to commute to multiple destinations to conduct their work affairs and it is a market norm for the companies to sponsor any related costs. HMRC has defined rates that cater to this and provide tax incentives.

PPE Tax Return: Certain work posts have a higher degree of risk and personal protection equipment has to be procured for such jobs.

Positions such as scaffolding, bricklaying, window washing (tall skyscrapers) and such require the employee to be fitted out in the appropriate safety gear. When the company reimburses its employee for such costs, then the UK government offers a tax rebate.

Equipment & Tools: Any instruments required for a trade are tax deductible. Whether it is a trowel for a bricklayer, a knife for a chef or a scissor for a barber, all are applicable for tax rebates.

Related posts

Leave a Comment