The past few months have been very challenging for the majority of businesses, large and small, local, national and international. Owners, managers and directors have juggled staffing levels, financing options and cashflow implications, let alone the issues and changes arising in everyone’s personal lives.
There are some regimes, aside from the grants being offered by the government, that may help companies generate cashflow and assist with employee retention.
Many UK businesses are unlikely to be ‘in the green’ for the accounting year encompassing lockdown.
Where losses have arisen, it should be possible to carry them back to the previous taxable period to offset taxed profits. This could create a cash repayment for the company or create a credit for offset against the company’s current outstanding tax balances.
Additionally, should the company be involved in Research and Development (R&D) activity, its qualifying R&D expenditure can be enhanced to reduce tax balances with any losses available for surrender in return for a cash repayment subject to meeting qualifying conditions.
Corporate tax returns should be filed as soon as possible after the end of the accounting period to secure possible tax repayments quickly.
The Enterprise Investment Scheme (EIS) and Seed EIS (SEIS), offer attractive tax advantages to individuals who wish to invest in shares of an EIS, or SEIS, qualifying company, such as up to 50 per cent income tax relief of their investment value. This in turn allows young entrepreneurial UK companies to raise growth capital to facilitate expansion plans.
EIS and SEIS are targeted at start-up or growth companies and require certain complex criteria to be met to be in order that the company and the investment satisfy the strict criteria. We recommend that specialist tax advice is sought to confirm eligibility.
Employees are fundamental to the success of any organisation and attracting and retaining key individuals can be challenging. More than any process or procedure, people create value in business. The creation of motivation and drive in these challenging economic times can be an important ingredient in the quest for a profitable recovery.
Increasing salaries and making bonus payments are two of the simplest ways to incentivise staff though with tighter cashflows and budget cuts, this can be difficult to achieve. Share-based incentive arrangements can provide the solution to securing motivated and loyal staff.
Wth Covid depressing the value of many companies, these depressed share prices can reduce the tax costs of establishing share incentives, making it a worthwhile time to consider introducing employee share incentives more appealing. The most popular is the Enterprise Management Incentive (EMI) share option scheme thanks to the favourable tax treatment for the recipient: there is no income tax on grant or exercise of the option, unless it is granted at a discount, or capital gains tax, normally at 10 per cent due to business asset disposal relief, on the sale of shares.
This provides a tax benefit for the employee while the employer has flexibility to align the criteria to deliver each employee’s incentive to the company’s strategic objectives. Other than fees for establishing the share incentive scheme, there is no cash outlay for the company, but employees are more meaningfully aligned to the success of the business.
An EMI scheme normally also provides the issuing corporate a significant tax deduction where EMI options are exercised.
At AAB we have extensive knowledge and expertise to help you through these troubling times.
Kevin Meaney is a partner at Anderson Anderson & Brown.
