Support for mid-sized businesses, Employment expenses and Investors’ relief

Our latest tax tips email for accountants started:

HMRC is apparently stepping into the business advice arena this week with a new service aimed at mid-sized businesses. We explain what advice this will cover, and whether you should be worried. We also have an update on the latest HMRC guidance concerning employee expenses involving salary sacrifice, and investors’ relief.

Below is just an extract from that email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)

Investors’ relief

This form of capital gains tax relief was launched in the 2016 Spring Budget as an extension of entrepreneurs’ relief (ER). It allows the investor to qualify for the 10% rate of CGT on the disposal of unquoted shares, like ER. The lifetime cap for the amount of gains which can be covered by investors’ relief is £10 million, the same as, but in addition to the lifetime cap for ER.

The conditions for investors’ relief must generally be met for the entire period for which the shares are held, unlike the ER conditions which only have to be met for the last 12 months of share ownership. The investor must have the investors’ relief conditions in mind when he subscribes for his shares, and he must understand how changes in his relationship with the company could jeopardise his ability to qualify for the relief on disposal of those shares.

It is thus disappointing that HMRC took until this week to release detailed guidance on investors’ relief, which is now found in their Capital Gains manual at CG63500.

An individual or trustee can qualify for investors’ relief if they subscribe for ordinary shares on or after 17 March 2016, and hold those shares for a continuous period of at least three years to date of disposal, which cannot be before 6 April 2019.

The investor mustn’t be an employee of the company when he acquires the shares, but he can become an employee of that company at least six months later, as long as that employment was not a condition of acquiring the shares. The investor can be an unpaid director of the company, as long as he had not transferred his own self-employed trade into that company.

The investor must not receive any significant value from the company in a four-year period that starts one year before he subscribes for the shares. The definition of value in this context is tight and mirrors the strict conditions for EIS shares.

If your client would like to take advantage of investors’ relief you should read the detailed guidance in the HMRC manual, or speak to one of our capital gains tax experts.

Investors’ Relief, Contractor loan schemes, Employee expenses

In last week’s newsletter we were enthusiastic about the new investors’ relief which was promoted in the Budget as a version of entrepreneurs’ relief for longer-term investors. Unfortunately the draft Finance Bill 2016 paints a different picture as we explain below. We also have a warning of some grim implications of leaving contractor loans outstanding, and an update on changes for employee expenses. 

This is an
extract from our topical tax tips newsletter dated
31 March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Investors’ Relief 
The new investors’ relief is not a form of entrepreneurs’ relief, as claimed in the Budget, it has more in common with the enterprise investment scheme (EIS). The conditions needed to qualify for the new relief are more restrictive than we expected. 
Last week we encouraged you to look at investors’ relief a means for individuals to benefit from a reduced rate of CGT, if they subscribe for shares in companies owned by family or friends. Unfortunately the new investors’ relief won’t be available to the relatives of employees or directors of the company. A key condition for investors’ relief (revealed in the draft Finance Bill 2016), is the investor must not be an employee or officer of the company or connected to such an employee or officer. 
Investors’ relief has also been saddled with conditions lifted directly from the EIS rules relating to value received from the company. Under EIS the investor losses a portion of their income tax relief, and associated CGT exemption, if he receives significant value from the EIS company within a four year period; (one year before the shares were issued to three years afterwards). This prevents the investor, or anyone connected with the investor, receiving anything worth more than £1,000 from the company in that period. 
Although there is no income tax relief available under investors’ relief, and the CGT relief amounts to a halving of the top CGT rate, similar rules to disqualify shares from investors’ relief will apply when value is received from the company (TCGA 1992, Sch 7ZB). This will limit investors’ relief to people completely unconnected with the company, such as “angel investors”. It will also prevent those investors taking any guiding role with the company such as a non-executive director.

This is an
extract from our topical tax tips newsletter dated 31
March 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
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and focused on precisely what accountants in general practice need to
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