Video Games Tax Relief v R&D Tax Relief for SMEs

Some video games companies are in the enviable position of being able to choose between claiming Video Games Tax Relief (VGTR) or R&D tax relief – both of which can generate loss making companies a cash tax credit.

For one client we recently worked with, we were able to claim both in one period on different games, after calculating on a project by project basis which would give the best result. This client benefitted from cash VGTR credits amounting to £70k, and an R&D tax credit of £59k!

R&D tax relief v Video Games tax relief

It’s possible that the development of a video game could incorporate activities which would qualify for both R&D and VGTR; however legislation prevents a company from claiming both reliefs on the same “project”. It is therefore important to consider which relief would give the best result for the company. Unfortunately, the answer isn’t always obvious.

On the face of things, it would seem that R&D tax relief would give the greatest benefit…

R&D tax relief

SMEs can claim a 230% deduction in relation to qualifying expenditure on R&D – namely staff costs, consumables and subcontracted R&D. If the SME is loss making it can surrender the loss up to 230% of the qualifying expenditure for a tax credit at 14.5%.  For example if a loss making SME incurred qualifying expenditure of £100,000 the maximum tax credit which could arise would be:

R&D tax credit: £100,000 x 230% x 14.5% = £33,350

Video games tax relief

VGTR was introduced on 1 April 2014 and only “core expenditure” incurred on or after that date spent in the EEA can qualify. Core expenditure is expenditure on designing, producing and testing the video game. Companies can claim an additional deduction of 80% of Core Expenditure. If the game (which must be treated as a separate trade) is loss making the company can surrender a maximum of the 80% additional deduction for a 25% tax credit. For example, if core expenditure amounted to £100,000 the maximum tax credit which could arise would be:

VGTR credit: £100,000 x 80% x 25% = £20,000

Real life example

The client that benefited from a total of £129k in tax worked on the development of nine video games within their accounting period (which straddled the 1 April 2014). An element of the development works on all nine games qualified for R&D tax relief, however  a number of the games might also have qualified for VGTR.  Whilst working through the comparison calculations and the process for claiming VGTR, we made the following observations:

  • We found that across the different projects the average qualifying “Core Expenditure” for VGTR amounted to double the amount which would have qualified for R&D tax relief. This might indicate that VGTR on the whole would give the best result (however, this wasn’t always the case).
  • Where VGTR was claimed, the taxable profit/loss for that specific game for the period was deducted/added back to the results of the “main trade”. This therefore impacted on the losses available to surrender by the company for an R&D tax credit.
  • VGTR could not be claimed in relation to games for which SME R&D tax relief had been claimed on in earlier periods.
  • To maximise a cash tax credit in a particular period it may be necessary to consider a number of different claim combinations.
  • To be able to make a VGTR claim the company must apply to the British Film Institute (BFI) for certification that the video game is culturally British. We found that the BFI were extremely approachable when we contacted them to clarify a few points. However, where possible this application should be made early to avoid delays.

For our client, generating the cash benefit of the tax credit was the most important consideration and we found that the optimum result for the period was generated by claiming VGTR on two games only. The answer may have been different if their priority was to maximise the cash benefit over the whole development period. Also, had VGTR been available for the whole period the answer may have been different again!

In summary, the new VGTR rules are not straightforward and there are lots of different elements and interactions to consider. However, we successfully guided our client through the BFI certification process for the two games, with the client receiving the cash tax credits within two weeks of the certificates being sent to HMRC.

Client feedback: “Thank you for all your help with the BFI applications, you’ve been super quick and efficient and a pleasure to work with. It’s very much appreciated.”

If you would like to discuss VGTR or R&D tax relief, please do not hesitate to call Louise Barker, Peter Tindale or Alastair Wilson on 0191 285 0321.

Are you using Sage 50 Payroll v2012 or v2013? Your end of life notification…

From April 2015, Sage will begin withdrawing support for customers currently using Sage 50 Payroll v2012 or v2013 software.

This is standard practice in order to focus on new technology and legislation.

This means that Sage will be withdrawing updates and general support for your software. Additionally, your software will become non-compliant with legislation and may face compatibility issues with other software.

If you are currently using Sage 50 Payroll v2012 or v2013, you will receive communication from Sage outlining the details and notifying you about the withdrawal of updates and support.

We recommend you upgrade to the latest version of Sage 50 Payroll. You have the choice to move to 50 Payroll on monthly subscription, ensuring you always remain up to date with legislation and software updates and to avoid compatibility or other software issues.

We also offer great discounts on Sage RRP – contact us to find out more.

For advice and support about your Sage 50 Payroll, please contact Claire Richardson on 0191 285 0321 or email claire.richardson@taitwalker.co.uk.

Building your credit history after bankruptcy or an IVA…

For some of our clients, bankruptcy or an IVA is the only solution to their debt problems. We work with them to make sure they understand how to come back from a bad credit history and ways they can improve their score.

The most regular questions we get asked are:

  • What will happen once my bankruptcy or IVA has ended?
  • What on-going effects will I experience?
  • Will I be able to get credit?
  • How long for things to be “normal”?

We’ve set out to answer these questions in today’s blog…

Start with the facts – how is your credit rating affected during a bankruptcy or IVA?

As most people would expect, during the period you are bankrupt you are unable to obtain any credit without informing an organisation that you are bankrupt. This does limit your options and so your focus should be on building your credit history back up, with positive actions and payments.

For an IVA, similar provisions to be written into your proposals, preventing you from obtaining credit during the period you are in the IVA.

What happens once your bankruptcy or IVA has ended?

Once you are discharged from bankruptcy or no longer subject to an IVA there is nothing legally preventing you from obtaining credit. However, your credit rating will have had a negative hit and so obtaining credit won’t be as easy as before.

It’s likely that leading up to your bankruptcy or IVA, late payments or missed payments will have already damaged your score and so now is the time to try and improve it!

Credit Score – How long is it affected?

Your credit report will usually date back 6 years and therefore will detail any adverse credit, including any bankruptcy or IVAs.

Your score is something that can be repaired over a period of time, but there are things you can do to improve your score a little faster. This involves building a positive payment history with new creditors or with any accounts which survived the bankruptcy.

See our hints and tips below.

Hints and tips – how to improve your credit rating

  • Firstly, ensure you are registered on the electoral roll (this bit is really important).
  • Consider applying for credit but act wisely – don’t take out more credit than you know you can afford to repay.
  • Before making a formal application for credit cards or store cards contact the provider and find out which reference agency they use and obtain a copy of your report from that agency. Find out what criteria they apply and whether your history will most likely result in a rejection of the application. By asking these questions it ensures you don’t apply for credit cards for which you don’t fulfil the criteria. An unsuccessful application can result in an adverse effect on your credit score.
  • Don’t just make minimum payments against cards – repay in full on a timely basis if you can, or at least make big lump payments where possible.
  • Always pay on time – late payments, or missed payments have a big effect on your credit score.
  • Pay utility bills by direct debit and pay on time.
  • Check your credit report has the date of any bankruptcy or IVA discharges detailed on it – if the date of discharge of bankruptcy is not detailed ensure this is amended.
  • While the bankruptcy or IVA debts will still be listed on the credit report, you can check that the report states there is no outstanding balance – if this is not the case either raise a dispute with the credit reference agency or go back to the original creditor and get them to amend accordingly.
  • Mortgage companies at this time are requesting a minimum of 3 years after your discharge from bankruptcy before considering a mortgage application.
  • Make sure credit limits on any cards are at a satisfactory level but are not excessive – never borrow more than you can afford .

For further information and advice, please contact Lynn Marshall on 0191 285 0321 or email lynn.marshall@taitwalker.co.uk  

Shared Parental Leave – Who’s left holding the baby?

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Today we welcome a guest blog post from Mincoffs Solicitors – a leading corporate law firm in Newcastle upon Tyne – who discuss the rules regarding the new Shared Parental Leave regime…

Next month new rules will come into effect which are intended to offer greater flexibility to parents in terms of their options for caring for their new-born or adopted children.

From 5 April 2015, some parents will have the ability to utilise the new ‘Shared Parental Leave’ regime which will allow parents to split up to 50 weeks’ off work having a baby or adopting. The first two weeks of compulsory maternity leave will remain the preserve of mothers but it will then be possible to effectively transfer some, or all, of the remaining period of leave to the father, meaning parents can soon decide to take some time off together and/or alternate periods of leave to look after their children.

Supporters of the new rules advocate that their introduction will challenge the traditional stereotype that women will inevitably be the parent that stays at home when children arrive and hope that it will encourage more evenly balanced expectations of parents’ roles. However, the new scheme has been met with significant criticism on a number of fronts. Critics are keen to point out that the eligibility criteria will mean that the right will only be available to couples if both parents work, which may preclude up to 40% of fathers because the mothers do not have paid jobs, according to a recent TUC study. Furthermore, given the low uptake of Additional Paternity leave, which saw less than 1% of eligible fathers use the statutory mechanism for more time off according to the TUC study. Perhaps unsurprisingly some the most vocal criticism has come from employers, particularly small businesses, who remain concerned about costs implications and the potential disruption to their business.

To qualify, the mother/adopter must be entitled to some form of maternity/adoption entitlement, have given notice to limit and must share main childcare responsibilities with the named partner, as well as meeting certain continuity of service criteria – the parent must have worked for the same employer for at least 26 weeks at the end of the 15th week before the week in which the child is due (or the week in which an adopter was notified of having been matched) and is still employed in the first week that Shared Parental Leave is to be taken. The other parent must also meet statutory criteria; in particular, they must have worked for at least 26 weeks in the 66 weeks leading up to the due date and have earned above the maternity allowance threshold of £30 week in 13 of the 66 weeks.

Shared Parental Leave may be taken at any time within the period beginning on the date the child is born/date of the placement and ending 52 weeks after that date. Other than fairly limited expectations, once the decision has been taken to opt for shared parental leave, employees cannot change their mind. Parents will be required to give their employer eight weeks’ notice of their intention to take shared parental leave and, if they do not want to take their leave all at once, they may make requests to their employer for up to three separate blocks of time off. Employers are unable to refuse shared parental leave taken continuously but they do have the option of refusing discontinuous blocks of leave if the employee’s proposal would cause disruption to the business.

Employees’ pay will be at the statutory level under the new rules, unless employers offer an enhanced package. Currently, the statutory rate is 90%  of average weekly earnings before tax or £129.58 a week (from 5 April 2015), whichever is lower. It is widely agreed that a key factor which will dictate the degree of take up of the new rights will be whether employers decide to offer enhanced shared parental leave pay, in a similar way to other family rights or not.

Employers are being advised to familiarise themselves with the new rules sooner rather than later and to consider implementing new staff policies  to set out the rules, procedures and eligibility criteria. Whilst there is no statutory requirement that a Shared Parental Leave Policy should mirror existing occupational schemes, it is important to remember that all policies need to be non-discriminatory, particularly in their impact upon men and women. As such, seeking advice to ensure that maternity, paternity, adoption and shared parental leave policies – and the remuneration provided to employees under each of them – are consistent will help ensure that employers are acting in accordance with statutory requirements as well as minimising the risk of potential claims being made against them.

For further information relating to Shared Parental Leave please contact Robyn Shepherd, Solicitor in Mincoffs Employment team on 0191 212 7717 or emailing rshepherd@mincoffs.co.uk

Help to Buy ISAs – what you need to know…

In his most recent Budget Announcement, George Osborne introduced the new ‘Help to Buy ISA’. This is a new form of cash ISA whereby the Government will add £50 for every £200 saved towards a deposit for the purchase of a first property.

The maximum government contribution will be £3,000 on £12,000 of savings, which will be paid when you buy your first home.

Accounts are limited to one per person, so those buying with a partner or friend can both benefit.

The aim of the scheme is to provide a tax-free bonus to help first time buyers who are saving to buy a property worth up to £450,000 in London or £250,000 anywhere else in the UK. Accounts can be opened and used for up to 4 years from the start of the scheme.

This new cash ISA is only available to first time buyers and you can only open one Help to Buy ISA during the lifetime of the scheme. Additionally, the government bonus can only be used towards a property that is being used for the first time buyer to live in as their only residence. Buy-to-let properties are not applicable.

There is a monthly maximum saving limit of £200; however there is an opportunity to deposit an additional £1,000 when the account is first opened. Also, the bonus can be claimed at any time, subject to a minimum bonus amount of £400.

The government are currently working with the industry to finalise the operational details of the scheme and they intend to formally open Help to Buy ISAs from Autumn 2015.

If you have any further queries regarding the new Help to Buy ISA, please contact Steven Whitehead on 0191 285 0321 or email steven.whitehead@taitwalker.co.uk

Tait Walker Wealth Management is a trading style of Tait Walker Financial Services Limited which is authorised & regulated by the Financial Conduct Authority.

Are you struggling to understand the new pension flexibilities? Let us talk you through it so you don’t get hit with a big tax bill

We are in a new age of retirement – which brings with it plenty of opportunity, but also lots of challenges.

According to recent research from YouGov and Old Mutual Wealth, 1.7 million Brits face a surprise pension tax bill.  Their recent survey found that, with just days to go until the new pension freedoms became reality, one in ten people who have access to their entire pension savings didn’t know that pension income is taxable.

In addition, one in four people do not fully understand the tax treatment of pension income. Normally 25% can be taken tax free, with the remaining amount taxed at their marginal tax rate of between 0% and 45%.

The survey also unveils that only one in four (26%) people who could have immediate access to their pension savings have a good understanding of income drawdown. This means that almost 13.5m people do not understand the main method of withdrawing cash without buying an annuity.

A significant proportion of people are planning to make use of the new pension freedoms post April.  The research shows that over half (56%) are planning to access their pension savings in some format.  It is therefore vital that everyone understands the tax implications of taking income from their pension savings.

Press coverage is often focused on the ability to accelerate withdrawals from pensions. However, people now understand that this aspect of pension freedom can come with a heavy tax cost. The real benefit of pension freedom is that you can extract those funds when you need them. By combining tax planning with wealth management advice, you can control the timing of other income sources when deciding to withdraw your pension funds. By minimising your tax bills, your pension goes further and gives you greater financial security in your retirement.

Having greater control over how and when you take income from your pension savings is a positive change, but there could be negative outcomes if you do not seek advice relating to your individual circumstances.

In the meantime, if you would like to talk to one of our pensions experts about your personal retirement choices, please don’t hesitate to get in touch. Email mark.parkinson@taitwalker or alastair.wilson@taitwalker.co.uk or call 0191 285 0321 and ask to speak to a member of our pensions team.

We welcome you to our pensions event, which is taking place in Newcastle on Thursday 25th June. We will talk you through the practicalities of the changes and how to make the most of the new Pension Freedoms. To reserve your place, please contact Kirsty.ramsey@taitwalker.co.uk

Let’s Grow fund – the next round

The fourth round of the regional “Let’s Grow” fund will shortly be coming to a close.  The deadline for ‘expressions of interest’ is Friday 24th April, with the deadline for full applications being the 22nd May.

The scheme offers grants of between £50,000 to £1m on projects with spend of £200,000 or more and the best tips we can offer anyone considering an application are:

  • Get advice from your accountants and consult with BE Group throughout the process to increase your chance of your bid being acceptable.
  • Make sure you meet State Aid requirements (check out ukassistedareasmap.com) for guidance, or speak to an adviser.
  • Make sure you create or safeguard sustainable jobs without causing loss of jobs elsewhere in the UK.
  • Large companies can only apply for new activities, which is a change to the previous rules.
  • Have a watertight argument to support the need for grant assistance.
  • The icing on the cake for the judging committee would be if the grant supported innovation, increased competitiveness or was seen to create apprenticeships.

Let’s Grow is a great source of grant funding for the North East but there are many others available, some of which may fit your needs better.

If you would like to discuss a grant application, or the funding required to go alongside your investment plans, then please contact Steve Plaskitt on 0191 285 0321 or email steve.plaskitt@taitwalker.co.uk

Junior ISAs – What you need to know

Junior Individual Savings Accounts (ISAs) are long term, tax-free savings accounts for children. They are a popular way to build up tax-efficient savings for your child’s future – it can provide a deposit for a house, University funding or to simply give them a great start to their adult life.

You may have been aware of the Child Trust Fund (CTF) scheme, which existed before the Junior ISA. The CTF scheme has now closed to new applicants and you are now able to apply for a Junior ISA instead.

If you already have a CTF you can continue to add up to £4,000 a year to the account.  From April 2015, you will be able to transfer the money to a Junior ISA.

Who is eligible for a Junior ISA?

Your child can have a Junior ISA if they:

  • Are under 18
  • Live in the UK
  • Do not already have a Child Trust Fund

What are the options?

There are 2 types of Junior ISA:

  • A cash Junior ISA (where you won’t pay tax on interest on the cash you save)
  • A stocks and shares Junior ISA (where your cash is invested and you won’t pay tax on any capital growth or dividends you receive)

The child can have one or both type of Junior ISA, but only one of each.

How much can I save into a Junior ISA per year?

The Junior ISA allowance for the 2014/15 tax year is £4,000.

Say, for example, you paid £2,000 into the child’s cash Junior ISA from 6 April 2014 to 5 April 2015, then only £2,000 could be paid into their stocks and shares Junior ISA in the same year.

You can transfer money between your child’s Junior ISAs but you can’t transfer money between a Junior ISA and an adult ISA or a Junior ISA and a CTF account.

Who is in control of the account?

The child’s Junior ISA will be in their name, but the parent or guardian who opens it is responsible for managing the account and is known as the ‘registered contact’. This person can change the account, change the account provider and report changes of circumstance, e.g. change of address.

The child can take control of the account when they’re 16 and become the registered contact for the Junior ISA, but they can’t withdraw the money until they turn 18. Their Junior ISA will automatically turn into an adult ISA when they turn 18.

For more information regarding Child Trust Funds or Junior ISAs please contact Geoff Cavanagh on 0191 285 0321 or email geoff.cavanagh@taitwalker.co.uk

 

 

 

 

This blog represents our interpretation of current and proposed legislation and HMRC practice as at the date of publication.  These may be subject to change in future.  Tait Walker Wealth Management is a trading name of Tait Walker Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.

Community Amateur Sports Clubs- And they’re off!

On Friday 27th March 2015, HMRC finally released the long anticipated CASC guidance notes, found at the link below, in relation to the new rules which will officially come into action on 1st April 2015.

https://www.gov.uk/government/publications/community-amateur-sports-clubs-detailed-guidance-notes/community-amateur-sports-clubs-detailed-guidance-notes

The guidance notes were as expected with some helpful examples included to demonstrate ways in which current registered CASCs could adapt certain aspects of their club in order to remain compliant with the new requirements.

For example, the guidance provides detailed examples of ways which golf clubs could adapt their membership fees in order to enable those golf clubs with fees higher than the new £520 annual limit to remain a CASC.

The guidance also sets out methods which HMRC would find acceptable as methods for CASCs to keep records of their members who “participate” in the sport, to assist those clubs with non-participating members to provide HMRC with adequate evidence that they have 50% of their members participating in the sport.

Additionally, the guidance provides more information on how HMRC believe CASCs will now be able to use a trading subsidiary structure, if they have high levels of non-member trading income but do not want to be deregistered as a CASC.

All existing CASCs will now have 12 months from 1st April 2015 to either remain within the rules or deregister as a CASC.

If you would like a “no obligation” consultation regarding the impact of the new CASC rules on your club, please contact Alastair Wilson or Sara Andrews on 0191 285 0321 or email alastair.wilson@taitwalker.co.uk.

 

Watch out for details of our CASC workshop update which is taking place on Tuesday 12th May. To find out more or register your interest, please contact Kirsty.ramsey@taitwalker.co.uk

If you want funding for professional advice – you only have today left to apply!

Growth Voucher

In January 2014 the Growth Vouchers programme launched a £30m fund aimed at encouraging small businesses to seek professional advice to help address key business issues such as raising finance, managing staffing costs and implementing company pension schemes in line with new Auto Enrolment rules.

The scheme is open to any business based in England that has been running for over one year, has up to 250 employees and has not sought “strategic advice” in the last three years.

However, the programme closes to new applicants on 31st March 2015 – so you only have today to apply and benefit from the scheme.

Businesses who wish to apply need to:

  • Be registered in England
  • Have less than 250 employees
  • Be actively selling goods and/or services
  • Have a turnover no greater than €50m or £45m
  • Own 75% or more of their business

Why Growth Vouchers?

Statistically, businesses are more likely to grow and succeed if they have a ‘financial business plan’ in place. However, there are many areas in which an equivalent business plan will also help to generate growth and help to focus the direction of the business.

The Growth Vouchers programme recognises this and provides the ability to seek financial support for advice across a range of key business areas. With the Growth Vouchers scheme, you can receive advice for Finance (e.g. business planning, forecasting), IT strategy, HR and Marketing. Please be aware that the project has to be completed within 90 days of the voucher being awarded.

How to apply?

If you have been looking for advice on any of the subject matters covered and would like funding towards your project, please register now before the opportunity expires at the end of March. The Growth Voucher application process is online and can be accessed here.

Following submission you will be contacted and advised on the next steps (if successful).

Tait Walker is an accredited Growth Vouchers adviser and our Growth Vouchers profile can be viewed on the Enterprise Nation Marketplace.

For further advice and guidance, please contact Alastair Wilson on 0191 285 0321 or email alastair.wilson@taitwalker.co.uk.

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