December Tax News with Val from Beyond the Numbers

As we become accustomed to the staggering tax breaks available under SEIS, we learn how and when to use the scheme, either as an investor or as a new business seeking to raise funds.

Ideally, to ensure that the investment is not entirely driven by tax breaks, there needs to be an additional source of motivation. This could include:

• Wanting to help a niece or nephew starting a business.
• Knowing the people behind the new business, and trusting their business acumen.
• A desire to support the particular activity the business is involved in.

The trade must not have been in existence for 2 years or more. To reduce any potential risk, an investor may want to delay investing until after the first year’s results are known. With care this can be achieved, provided that the company has not already raised the maximum permissible amount, which is £150,000.

The income tax relief on an SEIS investment is at a fixed rate of 50%, regardless of the tax rate you are actually paying. Moreover, you can eliminate capital gains tax on a gain made in the current tax year by investing the amount of the gain via SEIS. This means that if you were to lose all your money on the SEIS investment, the actual cost to you is nothing! This is because of the range of the amount of the tax reliefs available.

Following on from last month’s Tax E-News, if you thought the risk of HMRC coming along to review your business records had gone away, there is bad news; the Business Records Checks (BRC) programme is being relaunched across the UK, although some regions will not be targeted until 2013.

HMRC will be sending letters to small businesses that it believes may be at risk of keeping inadequate records, advising them that it will be in touch by phone. This call will take businesses through a set of questions designed to assess their record keeping affairs. It is at this stage that we recommend referring the caller to us, as providing HMRC with information that is wrong or ambiguous will not help your cause.

Depending on the outcome of the phone call, HMRC will decide on whether you would benefit from “tailored educational support” and whether a visit to the premises is necessary.

If a BRC visit is arranged, we will take care to ensure that HMRC’s checklist approach provides them with a proper understanding of the records kept. We will determine this at the time of the visit, thus avoiding the risk that HMRC officers will come to the wrong conclusions when back at their own offices. Any failure on HMRC’s part to fully understand the way the business operates could result in further action taken by them.

If in the meantime you have any concerns about the adequacy of your business records please let us know and we can give advice before any possible HMRC involvement.

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