2012 was always going to be tough to beat as a good budget for Tech when we were wooed by the introduction of SEIS, the idea of Patent Box was first floated along with better deals for EMI option holders and reduced corporation tax rates….. Nothing so glamorous arrived this year but we had some good, some bad & some just strange…..
SEIS continues to be a double-edged sword. The headlines do not show the reality of actually being SEIS qualifying; the restrictions are far and wide. Regardless, the capital gain relief for investments has been extended, but halved. It is a small cheer for angel investors mixed with a little disappointment- from 6th April, an investor will be able to get 50% Income Tax Relief and 14% CGT relief – a total of 64% of their investment being covered by tax relief, down from 78% in the current tax year. Weighing this up, the extra 28% from 2012/13 was only a one year kicker so an extension is still a positive.
We continue to wonder however when the government will understand this is not a zero sum game and that these incentives come back in multiples to the chancellor via a more active local start-up ecosystem.
The key is always people
We are big fans of tax incentives favouring entrepreneurs and employees and so a mini celebration among start-up teams is justified as the 10% entrepreneurs rate of Capital Gains Tax is confirmed for individuals who own less than 5% of shares as a result of EMI Qualifying exercised share options.
Even better the option period will count towards the 12 months share ownership qualifying period increasing the attraction of EMI options to help pull promising graduates north a few streets, away from a soul-sapping life in the City.
Still undecided as to if the employment rights for tax savings swap is a good or fair one. None the less it will go live from September this year; broadly summarising, £2k of tax-free shares and £50k of Capital Gains relief on the sale of those shares. Oh, and you’re fired!
Also announced for 2014 was Capital Gains relief for qualifying employee owned businesses. Details to follow.
Tax, tax and more tax
The Patent Box has arrived as of 1 April 2013. If you have registered patents and are generating revenue from them, either directly or indirectly, you can over the course of 5 years reduce the amount of corporation tax the company pays on those revenues to 10%. Awesome
On a broader note for Corporation Tax, the drive to simplify the system gets going with the tax rate for all companies set to be harmonised at 20% preventing high marginal rates between profit levels for ‘small’ companies and the standard ‘large’ rate. Not to mention that the 20% rate is the lowest of all the big economies. Likewise, awesome
A personal favourite of ours – R&D tax credits. Rewarding companies for innovating is one of the easiest and simplest tax incentives to have and drives our economy forward in a globalised world. We love seeing client innovations and helping them reap the tax benefits of these and so we welcome the announcement that large companies will be able to get the R&D Tax Credit cash repayment at 10% as SME’s do now. In certain circumstances start-ups apply under the large company scheme so this harmonisation is a big step forward in our opinion.
Many Tech Start-ups find themselves with operations overseas so we were disappointed to see additional complications for companies in groups. These complications come under the guise of the CFC (Controlled Foreign Companies) regime with items such as intercompany agreements and transfer pricing needing to be considered carefully.
Finally, a £2,000 national insurance holiday for all employees; sounds nice but we can’t see this having any material impact for Tech Start-ups.
End with a beer…
Overall not a bold budget, not a bad budget, pretty much in line with expectations. Better luck next time. At least we can enjoy an ever so slightly cheaper pint!