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.

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  

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

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.

Budget Wish List

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In preparation for tomorrow’s Budget Announcement, our tax team are sharing their Budget Wish Lists…

Andrew would like to see a number of changes that would benefit the North East, including:

  • More funding for graduate placements in the North East
  • Regional NIC holidays to boost employment in the region. This would make it cheaper to employ and would make a real difference to the North East if it was to last a considerable period.
  • Extension of EIS and Seed EIS to give income tax relief for those using their own savings to set up their own business.

Our team will also be providing key summaries and reactions throughout the week – follow us @TaitWalker for live tweets and updates and use the hashtag #Budget2015.

Budget 2015 Predictions

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Prior to Wednesday’s Budget Announcement, our Tax Associate Chris Hodgson shares his predictions…

  • A further increase in the personal allowance from £10,600 to £11,000 for 2015/16
  • An extension of the Annual Investment Allowance to incentivise investment in plant and machinery
  • No change to the rates of Income Tax and Value Added Tax
  • Extension of the Pension Freedoms to people who have already purchased an annuity
  • A reduction in the Lifetime Limit of £10 million for Capital Gains qualifying for Entrepreneur’s Relief

Our team will also be providing key summaries and reactions throughout the week – follow us @TaitWalker for live tweets and updates and use the hashtag #Budget2015.

Want funding for professional advice? Small and medium sized businesses – have you applied for Growth Vouchers? You only have 2 weeks left…

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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 2 weeks 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.

Budget Wish List

In preparation for next week’s Budget Announcement our tax team will be sharing their ‘Budget Wish List’. They will also be providing key summaries and live tweets throughout the week – follow us @TaitWalker.

Alastair would like to see a number of changes that would help to benefit the North East, including:

  • An extension of the Annual Investment Allowance to encourage investment in plant and machinery
  • Re-introduction of tax relief for corporates for investment in other corporates (this used to exist as the Corporate Venturing Scheme)
  • Reduction in business rates, in particular for empty property
  • Relief from employers National Insurance for “new” jobs, in particular in sectors such as the technology sector
  • Better use of Enterprise Zones locally to create genuine hotspots of SME growth (e.g. have a “tech sector” enterprise zone)
  • Localised reductions in corporation tax for specific sectors – e.g. reduction in corporation tax in the North East for companies in the offshore supply chain
  • Reduction in employment tax reporting red tape

Collection of Class 2 National Insurance contributions – the new arrangements

Most self-employed people pay class 2 and class 4 national insurance.

Historically, class 4 has been dealt with via the self-assessment tax return but class 2 has been paid either by monthly direct debit or by quarterly payment request. Class 2 national insurance is currently charged at a weekly rate of £2.80.

However, from April 2015 the arrangements for payment of class 2 national insurance will change. Under the new arrangements, class 2 national insurance will be paid along with class 4 national insurance and income tax in the January self assessment payments.

Class 2 National Insurance payments for the 2014-15 tax year

Class 2 payments by Direct Debit

Direct Debits for the majority of self-employed people will stop after collections have been made for the 2014-15 tax year. The last collection date for the 2014-15 tax year will be made on 10 July 2015. (Direct Debits for Class 2 national insurance contributions are collected 4 months in arrears.) It may be worth contacting your bank at the end of July to ensure no further direct debits are taken from your account.

Class 2 payment requests

These will be issued as normal in April 2015 to collect all class 2 national insurance contributions to the end of the 2014-15 tax year.

Small Earnings Exception (SEE) Certificates – renewals and applications

Under the new system, the class 2 liability will be determined by the level of profits declared on the self-assessment return. This means that there will be no need to renew or apply for an SEE certificate and all existing SEE certificates will cease to be valid from 11 April 2015.

If the level of profits doesn’t reach a Small Profits Threshold no Class 2 national insurance contributions will be due. The Small Profits Threshold for 2015-16 will be £5,965 ( for 2014/15 the threshold is £5,855).

Self-employed people will be given the opportunity to pay Class 2 national insurance contributions voluntarily to protect entitlement to certain benefits and State Pension.

Class 4 National Insurance

The tax position for class 4 national insurance is unchanged

If your taxable profits are above the lower Class 4 profit limit (£7,965 for 2014-15; £8,060 for 2015-16) you will pay Class 4 contributions of 9% on profits over this limit. You pay Class 4 national Insurance together with your income tax – usually due by 31 January and 31 July each tax year. If profits are high (over £41,865 in 2014-15; £42,385 in 2015-16) then the rate of Class 4 national Insurance falls to 2% on profits over this higher limit.

For further advice please contact Claudine Norden or Dorothy Johnston on 0191 285 0321.

Sources: HMRC and Tax Aid

Want funding for professional advice? Small and medium sized businesses – have you applied for Growth Vouchers? You only have 3 weeks left…

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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 3 weeks 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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