More often than not, corporate structures are explored and companies incorporated by individuals who either are looking to achieve a more tax efficient status, or maybe they have designed the next ‘must have’ toy/app in which they will need to grow and develop for a possible future sale.
There can be multiple things that need to be carefully considered but one of the largest appealing points of a corporate structure is that you could potentially offer tax efficient methods of investments.
The benefit to investors it that they can get multiple tax reliefs on their investment.
Tax efficient investment opportunities
Some of you may have come across EIS and SEIS – but what does this actually mean??? These schemes are tax advantaged schemes that offer a company a way of attracting potentially large sums of investment from external sources.
In return, the UK government offer the investors certain income and capital gains tax reliefs.
Subject to qualifying conditions (for both the company and individual investor), an investor could potentially receive up to 30% income tax relief on their investment via an EIS scheme and up to 50% income tax relief via an SEIS scheme.
This effectively means getting up to 50% off the cost of their investment. Upon disposal of the shares, the investors may also receive capital gains tax upon the disposal of shares, meaning any gain might also be tax free, or they will get further tax relief in the event of a loss.
The only ‘negative’ is that a company cannot simply offer shares out and expect their investors to obtain relief on their investment.
Just like many HMRC schemes, there are a number of hoops that need to be jumped through by the company also which can involve both applying for advance assurance (i.e. based on the information provided to HMRC, they would be happy to grant EIS/SEIS status on new shares) to actually applying for the EIS/SEIS relief upon issue of new shares.
You are advised to seek professional guidance here before loosely offering out shares in your company!
Possible additional Reliefs in the company
If your company is being innovative, carrying out research and development into an uncertain process that needs to be resolved to enable your business to operate and function more efficiently, then there may be a possibility of claiming Research and Development Credits (R&D).
For a small company and a qualifying R&D project, HMRC will allow the company to increase its R&D spend in its tax returns by 130% (for example if you spent £100, your tax returns will show a £230 deduction).
Various applications and specific forms need to be supplied to HMRC in order to apply for the additional R&D relief which can well reduce the amount of tax payable by a newly incorporated company.
Should you wish to find out more about how Wisteria could possible assist you and your company to grow and apply for various tax efficient treatments such as EIS/SEIS and R&D claims, then please do not hesitate to contact us on 020 8429 9245 or email info@wisteria.co.uk.