1. Welcome SME Growth Strategies in the New Britain
Fredrick’s Hotel, Maidenhead, June 13th, 2017

2. VAT Issues & Themes Presented by Gerry Myton
Partner, Harwood Hutton Specialist Tax Services LLP

3. Brexit Lancaster House speech – 12 points
UK will leave the Customs Union and the Single Market
Both the official Leave and Remain camps publically stated we would remain in/retain access to the Single Market
Negotiate own trade deals/free movement of people
“No deal is better than a bad deal”

4. Brexit (2)
UK has large trade deficit with Europe – c£70bn, 3.7% of GDP
UK has trade surplus with only four of the 27 (Cyprus, Greece, Ireland and Malta)
UK exports to Ireland equal to circa 1.5% of UK GDP
Ireland exports 14.1% of GDP to UK; Luxembourg 10.1%; Malta 9.1%; Netherlands 7.6%; Belgium 7.3%; Slovakia 5.2%
Big EU economies less reliant on UK trade

5. Brexit impact Goods to UK Services to UK Austria Low Belgium High
Ireland
Medium
Malta
Romania
Germany
Sweden
France

6. Brexit (3) Can the EU really negotiate as 27?
Different economies impacted differently by Brexit
If WTO rules applied, Ireland and Denmark would be hardest hit by WTO Rules – 10% plus tariffs on average for both
One in seven cars made in Germany goes to UK – 3.5% of German GDP!
UK has a trade surplus in services to EU of circa £17bn

7. VAT issues - Goods Back to pre-1993? Intrastat /EC Sales List – goes
Imports not acquisitions
Deferment account needed or guarantee rises – cost!
Exports not dispatches – VAT payment at EU border?
Distance selling goes – multiple VAT registrations
Restructure – don’t deliver goods, arrange their delivery as agent

8. VAT issues - Services
Less disruption – Single Market is more about goods
B2B should be fine – it was pre 31/12/1992
B2C
procedural change
MOSS goes
Registrations each EU state
Non-established person – €0 threshhold
Could be denied access to EU markets if they do not set up an EU-based establishment

9. Non-Brexit Issues HMRC OTT team VAT Penalty Regime
Corporate finance deals / VAT recovery
Duty – HMRC reviews
E-books
Adecco v Reed

10. Contact
Gerry Myton Harwood Hutton Specialist Tax Services LLP 22 Wycombe End, Beaconsfield Mobile:

11. Tax. Considerations and Strategies for SMEs
Cormac Marum Head of Tax Advisory Unit
Maidenhead
June 13th, 2017
Breakfast Briefing

12. Agenda The Real Numbers Budget Timetable Business Tax Roadmap
Apprenticeship Levy
Employment Taxes
Stamp Duty Land Tax
Members’ Voluntary Liquidations
Raising Outside Investment
Standard Tax Giveaways
Forecast Increases in Tax Revenues
Breakfast Briefing

13. Mayhem!
Breakfast Briefing

14. The Real Numbers Only discusses budget projections on a cash basis
No other large business can get away with this approach
A proper financial review…
scrutinizes the latest proper accounts first
then considers the plans for the future
Where are the Government’s paper accounts?
Breakfast Briefing

15. Breakfast Briefing

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17. Or, put another way… £712,000,000 per day…
£4,000 a year for every man, woman and child residing in the UK
Breakfast Briefing

18. Breakfast Briefing

19. Or, put another way…
Equal to the anticipated TOTAL UK TAX REVENUES from April 1st 2015 to 31st May 2018
A credit card bill for the UK over THREE TIMES its annual income
Breakfast Briefing

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23. NOW! x 87,300
NOW! x 7.65
Breakfast Briefing

24. Breakfast Briefing

25. Budget Timetable
8th March 2017
Spring Budget
18th April 2017
Theresa May calls General Election
27th April 2017
Finance Act 2017 passed
8th June 2017
General Election
June/July 2017
Post-Election Finance Bill
November 2017
Autumn Budget
Can re-introduced measures be effective from April 2017 or not?
Breakfast Briefing

26. Business Tax Roadmap Pulled from Finance Act 2017
To be re-introduced in post-election Finance Bill?
Breakfast Briefing

27. Business Tax Roadmap Reform Large Companies SMEs Tax loss off-set
Tax deduction for interest
Use of brought-forward losses
Extending WHT on royalties
Corporation tax rates
Corporation tax payments
Breakfast Briefing

28. Business Tax Roadmap Tax loss off-set
Losses arising after 1st April 2017
Available for carry-forward against other income streams and profits of other group companies
No more streaming of tax losses
Greater flexibility than current Group Relief
New rules applicable to all companies
Large Companies SMEs
Breakfast Briefing

29. Business Tax Roadmap Tax deduction for interest
Part of the OECD BEPS project
From 1 April 2017
Interest tax deduction limited to 30% of UK group’s EBITDA
De-minimis threshold of £2m net UK interest expense
Large Companies SMEs
Breakfast Briefing

30. Business Tax Roadmap Use of brought-forward losses From 1 April 2017
Only 50% of group profit can be sheltered by brought-forward losses
Subject to a £5m profit de-minimis
Large Companies SMEs
Breakfast Briefing

31. Business Tax Roadmap Extending WHT on royalties
WHT extended to payments for the use of intangible assets such as trademarks and brand names (subject to double tax agreements and EU interest and royalties directive)
Treaty abuse rule to be introduced to UK domestic law
WHT will apply to royalty payments connected to the UK permanent establishment of overseas companies
Large Companies SMEs
Breakfast Briefing

32. Corporation Tax rates Date Rate 1 April 2016 20% 1 April 2017 19%
17%
Large Companies SMEs
Breakfast Briefing

33. Business Tax Roadmap Corporation tax payments 2018 2019 2020 4
Large companies with profits less than £20m (y/e 31 December)
2018
2019
2020
Jan
Jan
Jan
April
April
April
July
July
July
Oct
Oct
Oct 4
Breakfast Briefing

34. Business Tax Roadmap Corporation tax payments 2018 2019 2020 4 6
Large companies with profits exceeding £20m (y/e 31 December)
2018
2019
2020
Jan
Jan
Jan
April
April
March
July
July
April
Oct
Oct
June
Sept
Dec 4 6
Breakfast Briefing

35. Reforming the Substantial Shareholding Exemption (‘SSE’)
Trading company requirement
Investor company
Investee company
Current
Beforehand
Afterward
Yes
From April 2017
N/R
Breakfast Briefing

36. Post April 1st 2017 Changes
The qualifying period for the substantial shareholding now a continuous 12-month period starting not more than six years before the date of disposal
The requirement for the vendor company to be a trading company or member of a trading group abolished from April 1st 2017
The requirement that the company being sold is trading immediately after the transaction is removed except where the disposal is to a connected person
Breakfast Briefing

37. Benefit of Changes
Proceeds can be retained in the holding company and used for investment post sale of sole subsidiary – previously the holding company would have been liquidated
SSE now be available to a wider range of companies
Breakfast Briefing

38. Apprenticeship Levy 2015 Election – Triple Tax Lock
No increase in the rate of NIC
Apprenticeship Levy = + 0.5% on every employer’s wage bill
From 1st April 2017 – payable alongside income tax and NIC
Each employer will receive £15k allowance to offset against levy
Only employers with a wage bill of >£3m will be affected
Large Companies SMEs
Breakfast Briefing

39. Employment Taxes Salary sacrifice arrangement Off-payroll workers
Share incentives
Breakfast Briefing

40. Salary Sacrifice Survived the 2017 Finance Act cull
Tax and employer NIC advantages of some salary sacrifice schemes removed from April 2017
All arrangements in place before April 2017 protected until April 2018
Arrangements for cars, accommodation and school fees protected until April 2021
Breakfast Briefing

41. Salary Sacrifice Salary sacrifice unaltered for: Pensions Childcare
Cycle to work
Breakfast Briefing

42. Off-Payroll Workers Survived the 2017 Finance Act cull
From April 2017 off-payroll rules in public sector will change
Public sector body paying the worker’s company will have responsibility to apply rules
Will have to pay worker’s company after deducting tax
‘Those working in a similar way to employees in the public sector will pay the same taxes as employees’
Will they be given same guarantee of work, same benefits and same generous pension arrangements?
Breakfast Briefing

43. Share Incentives Key tool for SME businesses to encourage growth
Two main HMRC-favoured approaches:
Employee Shareholder Status (‘ESS’) - abolished
Enterprise Management Incentive (‘EMI’) – continues
Growth shares
Breakfast Briefing

44. Important to retain any ESS status!
Share Incentives: Employee Shareholder Status (‘ESS’)
Introduced 1st September 2013
Employee shareholder agreement – shares for giving up employment rights
Minimum £2k value for shares granted to employee
Employee has income tax charge on shares received above £2k in value
But gain made on first £50k of shares received = exempt from tax
Budget 2016 limited tax-free gain to £100k for shares issued on or after 17th March 2016
Abolished 1st December 2016
Important to retain any ESS status!
Breakfast Briefing

45. Share Incentives: Employee Management Initiative (‘EMI’)
Option to acquire shares
Exercise usually restricted to exit only
Exercise price set at ‘no lower than’ market value at date of grant
Market value at date of grant includes heavy minority discount
Not an all-employee scheme
Vesting can be performance-related
£250k limit to value of EMI options at date of grant
Qualifying trading companies only
£3m limit on value of EMI options granted by company
Employee qualifies for Entrepreneurs’ Relief when shares sold after exercise
Breakfast Briefing

46. Share Incentives: Using EMI options in place of bonus scheme
Options granted to one employee over 3% of shares
Agreed AMV with HMRC at £60,000
Shares designed so that employee could ‘put’ the shares to the ‘employer’ for a capped price of £250,000 after five years had elapsed
When option is exercised, employee pays income tax and NIC on the £60,000 value and the growth will be a capital gain with Entrepreneurs’ Relief
Company eligible for CT deduction on exercise
Breakfast Briefing

47. EMI Option versus Cash Bonus
GROSS VALUE £250,000
EMI Option
Cash Bonus
Value subject to income tax
60,000
250,000
Value subject to capital gains tax
190,000
Income tax + employee 43%
28,200
117,500
Capital gains 10%
19,000
Total employee tax
47,200
Net benefit to employee
202,800
132,500
Employer
8,280
34,500
Corporation Tax
49,073
54,055
Cost to employer
209,207
230,445
Cost to provide £1 of net benefit
£1.032
£1.739
Breakfast Briefing

48. Share Incentives: Growth shares
New class of shares with restricted capital rights
Typically only start to participate in value after other shareholders have received a fixed return
Initial value of shares is low
If shares meet voting and share capital requirements, they can qualify for Entrepreneurs’ Relief
Breakfast Briefing

49. Share Incentives: Growth shares - example
Employer did not qualify for EMI
Valued company at £3m and set ‘hurdle’ for growth shares at £3.3m
Shares valued at par value
Award of growth shares to 8 employees who subscribed at par
No income tax on acquisition
Future growth will be subject to CGT (at 20%)
Breakfast Briefing

50. Stamp Duty Land Tax Non-residential property – new ‘band’ system
Additional rate on residential property
Breakfast Briefing

51. Stamp Duty Land Tax Non-residential property
SDLT for residential property reformed in December 2014
Change for old ‘slab’ system to new ‘band’ system
Non-residential property remained under old slab system
For transactions completed on or after 17th March new band system has applied to non-residential property
Breakfast Briefing

52. Consideration/net present value Freeholds/ Lease premiums
Stamp Duty Land Tax
Non-residential property rates
Consideration/net present value
Freeholds/ Lease premiums
Lease rentals
Up to £150k 0%
Over £150k to £250k 2% 1%
Over £250k to £5m 5%
Over £5m
Freehold/Lease premium transactions >£1.05m will pay more
Grants of leases with NPV of rentals >£5m will pay more
Breakfast Briefing

53. Stamp Duty Land Tax Additional rate on residential property
Up to 31st March 2016, non-natural persons paid 15% SDLT on purchase of residential property over £500,000 unless they qualified for exemption: Rental property business/ Property trader/ Property developer
From 1st April 2016, additional rate of SDLT applies to:
All individuals and trusts unless property replaces main residence
All companies without exemption
Breakfast briefing

54. Stamp Duty Land Tax Residential property rates Consideration
Standard rate
Additional rate
Up to £125k 0% 3%
Over £125k to £250k 2% 5%
Over £250k to £925k 8%
Over £925k to £1.5m
10%
13%
Over £1.5m
12%
15%
Breakfast Briefing

55. Members’ Voluntary Liquidations
Rules pre-1st April 2016
Dividends received prior to liquidation = income
Dividends received during liquidation = capital
Rules from 1st April 2016
Dividends received during liquidation = income or capital
Breakfast Briefing

56. Members’ Voluntary Liquidations
Rules from 1st April 2016
Dividends received during liquidation:
Income if caught by TAAR
Capital if outside the TAAR
Breakfast Briefing

57. Members’ Voluntary Liquidations
TAAR (section 396B ITTO/A 2005)
5% shareholder: Immediately before start of liquidation, individual held at least 5% of the ordinary share capital
Close company: Company was a ‘close company’ at any time in the two years up to the date of commencing winding-up
Same or similar trade or activity: Within two years of receiving the distribution, the individual is involved directly or indirectly in the carrying on of the same or similar trade or activity
Intent: The main purpose, or one of the main purposes, of the transaction on the whole is to obtain a tax advantage
Breakfast Briefing

58. Members’ Voluntary Liquidations
Common commercial practice to liquidate Special Purpose Vehicles (SPVs) at end of project
Are MVLs dead?
Solutions available
Breakfast Briefing

59. Raising Outside Investment
Bank finance
Venture capital money
Business angels
Enterprise Investment Scheme – ‘EIS’
Seed Enterprise Investment Scheme – ‘SEIS’
Breakfast Briefing

60. Raising Outside Investment
Business Investment Relief
Investors’ Relief
Breakfast Briefing

61. Raising Outside Investment
Business Investment Relief (from 6th April 2012)
Allows non-doms to invest in UK businesses without investment being treated as a remittance
Non-domiciled investor can make a tax-free gain if proceeds are taken out of the UK within 45 days of sale
Commercial trade includes a business generating income from land
But anyone resident in the UK for at least 15 of the past 20 years will become deemed UK domiciled from April 2017
Breakfast Briefing

62. Raising Outside Investment
Investors’ relief (from 17th March 2016)
Investors’ relief will be available to external investors
No restriction on type of trading company
No minimum 5% shareholding threshold
No requirement to be an office-holder or employee
But trading company must be unlisted (AIM is ‘unlisted’)
Shares must be acquired by subscription
Shares must be held for a three years continuously before sale
Separate £10m limit for lifetime gains
Breakfast Briefing

63. Standard Tax Giveaways
Capital Allowances
R+D Expenditure
Patent Box
Breakfast Briefing

64. Standard Tax Giveaways
Capital Allowances
100% Annual Investment Allowance
On qualifying expenditure up to £200,000
100% First-Year Allowance
Energy-saving plant or machinery
Cars with low CO2 emissions
Zero-emission goods vehicles
Plant or machinery for certain refueling stations
Environmentally beneficial plant or machinery
Plant and machinery for use in designated assisted areas
Breakfast Briefing

65. Standard Tax Giveaways
R+D expenditure
130% additional deduction for qualifying R+D expenditure
14.5% payable tax credit
Definition of an SME
Staff headcount less than 500
Turnover not exceeding 100 million Euros
Balance sheet not exceeding 86 million Euros
Breakfast Briefing

66. Standard Tax Giveaways
R+D expenditure
R+D is…
Work to resolve a scientific or technological uncertainty aimed at achieving an advance in science or technology which is not readily available based on a competent professional’s view
Do you make a product that is…
Quicker
Lighter
Slimmer
Smaller
More energy-efficient
Recyclable
Digital
Breakfast Briefing

67. Standard Tax Giveaways
Patent Box: Total Company Profits
NON-PATENTED PRODUCTS
PATENTED PRODUCTS
19%
Profit on non-qualifying income
10%
Patent Box profit
19%
Profit from valuable marketing assets
19%
Profit from routine activities
Breakfast Briefing

68. NOT PATENTED PATENTED Patent Box Example INCOME QUALIFIES
Breakfast Briefing

69. NOT PATENTED PATENTED Patent Box Example INCOME QUALIFIES
Breakfast Briefing

70. Standard Tax Giveaways
Patent Box
In which category are you?
You have a patent and qualify for Patent Box relief
You have a patent but do not qualify for Patent Box relief
You have a profitable physical product but no patent
Breakfast Briefing

71. Forecast Increases in Tax Revenues +26% +33% +22% +55% +21% +54% +65%to
Income Tax
+26%
National Insurance Contributions
+33%
Corporation Tax
+22%
Capital Gains Tax
+55%
Inheritance Tax
+21%
Stamp Duty Land Tax
+54%
Insurance Premium Tax
+65%
Breakfast Briefing

72. Contact
Cormac Marum Harwood Hutton Ltd 22 Wycombe End, Beaconsfield