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Top 10 Tax Points for Companies During the Coronavirus Crisis

We are getting an increased number of enquiries about EMI options, sometimes linked with a salary sacrifice. Companies are hoping to agree low values with HMRC as a result of the economic uncertainty (we will update you once we have seen how HMRC are responding to these valuation submissions) and we have also seen companies wanting to reduce salaries in return for EMI options – this raises some interesting tax questions but it can be done.

We also have a number of SEIS/EIS investments which are still happening – companies are in need of funds and there remain willing private investors although in some cases they are driving hard bargains.

There are various things that companies may want to think about doing in these difficult times. These include:-

  1. Ringfencing property - moving a property into a separate company to ring fence it from liabilities of the trading companies. There are tax issues to consider in doing such a reorganisation but it should be possible to do it on a tax neutral basis.

  2. Bad trading debts - companies should be considering whether the requirement to write off bad debts / unpaid trade debts could give rise to losses that can be recognised for accounting and tax purposes, particularly if the company is otherwise still going to be profitable and so can make immediate use of any deductions.

  3. Deferral of tax PAYE/VAT deferral - companies should be speaking with their accountants about how they can defer tax/get VAT relief for bad debts in order to help them manage their cash flows. In particular we understand that for VAT deferral it is important to cancel or suspend any standing order otherwise the money will still go to HMRC.

  4. EMI options - now might be a good time to grant EMI options as share values should be low and they can be a good means of incentivising staff using shares rather than cash. We have seen some clients want to link the option grants with a salary reduction. The tax issues need to be looked at carefully but this should be possible.

  5. CSOP options - if companies don’t qualify for EMI options now might be a good time to squeeze more into the £30,000 limit whilst share values are low.

  6. Maximising ER - the news in the budget a couple of weeks ago that the benefit of entrepreneurs’ relief has been reduced from a lifetime limit of £10 million of gains to £1 million has been eclipsed by recent events. But with the qualification period being 2 years now shareholders might consider moving shares around between family members in order that more people can benefit from the £1m entrepreneurs’ relief limit. Of course all other conditions will need to be satisfied including that the recipient holds at least 5% of each of the votes, the nominal value of shares and the economic rights and also be a (genuine) employee or director of the business.

  7. EIS/SEIS Investment - If cash is required by companies they may be able to use SEIS/EIS as a means of attracting investors. As well as the income tax relief (an amount equal to 50%/30% of the investment reduces the investor’s income tax bill) and the CGT exemption on sale there is loss relief which means if they don’t get their investment money back on a sale the resulting loss (less the initial relief) can be set against income tax. The EIS Association is lobbying for a relaxation of the EIS rules and also an increase in the rate of tax relief so as to encourage investors to put in much needed cash to companies.

  8. Debt restructuring - companies may need to restructure their debt which may lead to loan write offs/capitalisations. The tax consequences of any such restructuring needs to be thought through carefully in order to minimise the tax charges which can arise and prevent unnecessary charges.

  9. Investors’ Relief - Where EIS/SEIS is not applicable (e.g. because of the trade or the age of the business) we should not forget investors relief which gives a 10% tax rate like entrepreneurs relief but its lifetime limit has remained at £10million. This is generally for non- employee/director investors.

  10. R&D Claims - companies should make sure they are optimising their R&D claims which can convert losses into real cash payments from HMRC


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