Tag Archives: cash flow

Research and Development (R&D) Relief

Your company can claim R&D Relief if they have an R&D project that seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty, not just an advance in its own state of knowledge or capability.

The project must be related to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.

In order to see whether your company could qualify, please check the following guidelines:

Project – it must be a separately identifiable and commercially viable project.

Advance in science or technology – what scientific or technological advance is being sought? This focuses attention on the project’s aim for an advance.

Science - Scientific uncertainty exists when knowledge of whether something is scientifically possible or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.

Technology - Technological uncertainty exists when knowledge of whether something is technologically feasible, is not readily available or deducible by a competent professional working in the field.

Directly contribute – you’ll need to show that the persons leading the R&D project are themselves competent professionals working in the relevant field.

Scientific or technological uncertainty – Explain why they consider the uncertainties are scientific or technological uncertainties rather than routine uncertainties.

SME Relief

If a company has fewer than 500 employees and either of the following:

an annual turnover not exceeding €100 million
a balance sheet not exceeding €86 million

It qualifies as an SME for R&D Relief.

This means there are higher rates of relief. From 1 April 2012, the tax relief on allowable R&D costs is 225% – that is, for each £100 of qualifying costs, your company could have the income on which CT is paid reduced by an additional £125 on top of the £100 spent. It also includes a payable credit in some circumstances.

Larger Company Relief

Otherwise the large company’s relief is available on allowable R&D costs at 130% – that is, for each £100 of qualifying costs, your company could have the income on which CT is paid reduced by an additional £30 on top of the £100 spent. If instead there is an allowable trading loss for the period, this can be increased by 30% of the qualifying R&D costs – £30 for each £100 spent.

Seed Enterprise Investment Scheme

In the Finance Act 2012 the government introduced a new tax advantaged venture capital scheme called the Seed Enterprise Investment Scheme (SEIS).

Qualifying investments will attract income tax relief at 50% on the lower of £100,000 and the amount of the qualifying investments made during the tax year for investments made between 6 April 2012 and 6 April 2017.

There are qualifying conditions as follows:

The maximum that can be raised under this scheme is £150,000.
The investee company must have been incorporated no more than two years before the SEIS shares are issued.
The company must have fewer than 25 employees and assets up to £200,000.
The company must not have had any investment from a Venture Capital Trust (VCT), or issued any shares in respect of which it has submitted an EIS compliance statement
Within 3 years of the date of the relevant share issue, all the monies raised by that issue must be spent for the purposes of a qualifying business activity, carried on either by the issuing company or by a 90% subsidiary. If this condition is not met, investors will lose their tax relief.
The payment of dividends to shareholders is not regarded as being for the purposes of a qualifying business activity.
There are also provisions for the withdrawal of SEIS relief in certain circumstances, such as where the shares are sold within three years of issue.
A qualifying trade is one which is conducted on a commercial basis with a view to the realisation of profit.
Most trades qualify, but some do not. A trade does not qualify if it consists wholly, or substantially, of ‘excluded activities’. A separate list of ‘excluded activities’ are available.
Shares must be paid up in full, and in cash, when they are issued.
Shares must be full-risk ordinary shares, and may not be redeemable or carry preferential rights to the company’s assets in the event of a winding up.

Investors

You have subscribed for shares which have been issued to you and which at the time of issue were fully paid for. You may subscribe via a nominee.
You do not have a ‘substantial interest’ in the company, at any time from date of incorporation of the company to the third anniversary of the date of issue of the shares. ‘Substantial interest’ is defined as owning more than 30 per cent of the company’s issued share capital, or of its voting rights, or of the rights to its assets in a winding up. Shareholdings of associates are taken into account in arriving at the 30 per cent figure. ‘Associates’ include business partners, trustees of any settlement of which the investor is a settlor or beneficiary, and relatives. Relatives for this purpose are spouses and civil partners, parents and grandparents, children and grandchildren.
Brothers and sisters are not counted as associates for SEIS purposes.
It does not permit employees of the company to claim SEIS relief, but there is a specific exception for directors who are not considered employees and do not receive remuneration.

Small Business: Essential Business Planning – Part 4 Cash Flow

Business Planning – Cash Flow

Once you’ve reviewed your sales, resources and costs for the business you will have formulated a budget profit and loss for the business, preferably on a month by month basis. You then need to take account of the payment terms of the sales and the purchases.

Payment terms for sales can vary, it is possible to set your own but with large clients it is not always possible for them to vary their terms from supplier to supplier. It is important to remember that they will often have deadlines for submission of invoices and processes that must be adhered to like purchase order numbers. Also, strange as it might seem an invoice cannot be paid until it has been submitted, so make sure your billing is always the first thing you get done. But even after the invoice has been sent you could still be waiting for some time before the cash is received. Always follow up regularly with statements and reminders but be aware of the time lag as it will affect your ability to pay your own suppliers.

On the purchases side you’ll have different payment terms from staff who maybe paid on a weekly or monthly basis, to rent that maybe quarterly in advance to other suppliers who may extend either 30 or 60 days credit. Don’t forget to include regular payments like PAYE or VAT and corporation tax payments 9 months after your year end. Also, include any capital items like equipment that needs to be purchased or any other costs your likely to incur.

So start with your opening bank balance and outstanding debtors received, then sales as they are paid to terms outlined then deduct costs as and when they fall due and each month this will give you a closing bank balance. You’ll be able to forecast at least a year and see the impact of the changes you’d like to make to your business before making the commitment. But it will also give you the opportunity to get the necessary funding it place to make your plans a reality.

Why is cash flow vital to your small business?

Cash flow is vital to your small business as it’s the single biggest reason for business failure. It can be a fantastic, profitable business but without cash flow the business will suffer. Failure to pay staff, suppliers or HMRC on time, can have consequences and can ultimately lead to winding up proceedings being issued on the company.

Many business owners do not pay enough attention to the cash requirements of their business and how to improve this.

There are 5 simple ways to improve your small business cash flow:

1. Invoicing not completed on a timely basis

If you haven’t sent the invoice you can’t receive the money, simple as that! So by making sure that all invoices are sent on time then you will automatically improve your cash flow. Don’t leave them to the end of the month, if the work has been completed or the goods have been shipped then make sure the invoice is sent. This helps in other ways too, if there is a dispute on an invoice it’s much easier to resolve if it’s fresh in your mind.

2. Lengthy payment terms

How long do you give your clients to settle your invoice? You can decide what payment terms are appropriate to your business and shorten them where possible. If you’ve completed a service then it is quite acceptable to extend 14 day terms, not 30 days and this means the money should be in your account sooner.

3. Offer settlement discounts

In situations where shortening the payment terms isn’t possible then it may be possible to offer a small discount for those clients that can pay sooner.

4. Inadequate credit control

How often do you review your debtors list and contact late payers? This should be carried out regularly. Where possible, I would advocate a system where the invoice is followed up with a brief call to check the client has received the invoice, a monthly statement of account and a telephone call if the invoice has exceeded the payment terms.

5. Lack of follow-up

What do you do if your client still doesn’t pay? Make sure you follow-up and have clear procedures in place for when a client doesn’t pay. If the statement, phone call and emails are not yielding payment, then make sure you have a 7 day letter to send. Then if they still don’t pay, it is time to issue a county court summons. Depending on the value of the debt this can all be done online, it’s quick, easy and cost effective. The claims process is outlined here.

If you are currently experiencing cash flow issues and would like a Business Review and some advice of how you can improve this in your small business, do contact us. We can help.