Entrepreneur

Business Asset Disposal relief (Previously known as Entrepreneur’s Relief)

2 min read

Business Asset Disposal Relief, is available for those in business, which may reduce the tax rate on the first £1 million of qualifying lifetime gains to 10%.

This is targeted at working directors and employees who own at least 5% of the ordinary share capital of the company and the owners of unincorporated businesses.

BADR is available to individuals on the disposal after two complete qualifying years of:

  • all or part of a trading business carried on alone or in partnership
  • the assets of a trading business after cessation
  • shares in the individual’s ‘personal’ trading company
  • assets owned by the individual used by the individual’s personal trading company or trading partnership where the disposal is associated with a qualifying disposal of shares or partnership interest.

New 5% rules for company shareholders

To qualify for BADR, the company needs to be an individual’s personal company where the individual must:

  • be a company employee or office holder
  • hold at least 5% of the company’s ordinary share capital and
  • be able to exercise at least 5% of the voting rights.

For disposals on or after 29 October 2018, they must also satisfy one of the following tests:

  • a distribution test – an individual is entitled to at least 5% of the company’s profit available for distribution to equity holders and 5% of the assets available for distribution to equity holders in a winding up; or
  • a proceeds test – an individual is entitled to at least 5% of the proceeds in the event of a disposal of the whole of the ordinary share capital of the company.

Thought should be given to the structure of your company at the outset to ensure that the tax benefits of Business Asset Disposal Relief are not lost.

Investors’ Relief (IR)

If you do not meet the criteria for Business Asset Disposal Relief (BADR) you may still be able to take advantage of the ow 10% rate of tax through IR.

IR is available to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

•        shares must be newly issued and subscribed for by the individual for new consideration

•        be in an unlisted trading company, or an unlisted holding company of a trading group

•        have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016

•        have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

Talk to us about your BADR planning

Loucas can help you to build a tax-efficient financial plan that ensures you are making the most of the reliefs and allowances available to you. 

If you would like to discuss any of the issues raised in this guide please call 01622 758257 or contact us.

Investors’ Relief (IR)

1 min read

If you do not meet the criteria for Business Asset Disposal Relief (BADR) you may still be able to take advantage of the ow 10% rate of tax through IR.

Business Asset Disposal Relief (BADR) has been extended to external investors (other than certain employees or officers of the company) in unlisted trading companies. To qualify for the 10% CGT rate under ‘investors’ relief’ the following conditions need to be met:

  • shares must be newly issued and subscribed for by the individual for new consideration
  • be in an unlisted trading company, or an unlisted holding company of a trading group
  • have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
  • have been held continuously for a period of three years before disposal.

An individual’s qualifying gains for IR are subject to a lifetime cap of £10 million.

How we can help

We can advise as to the best course of action in your own particular circumstances. If IR35 does apply to you we can help with the necessary record keeping and calculations so please do contact us.

Financing Your Startup – Part 1 working out how much you need

By Athos Louca

2 min read

If a new business is going to stand any chance of surviving then it is essential that you have sufficient financial resources in place to see it through its early stages and beyond.

Those setting up in business have a number of different options available to them when it comes to sourcing funding for their venture.  Understanding what these mean for your business will help ensure you choose the most appropriate type of finance for you.

Working out how much you need

Before talking to any investors you must first establish exactly how much money will be required.

Too often business owners only consider how much they will need to actually set up the business such as buying computer equipment or building a website, it is also vital that consideration is made for the ongoing running costs of the business.  This is known as working capital.  It is likely to take sometime for revenues to grow as the business establishes itself, during this time funds will be needed to fund ongoing costs such as rent, wages, stocks etc.

A cash flow forecast should be put together for the first 12 months of the business which will show the monthly opening and closing cash position of the business based on your budgeted business activity.

There are many free excel cash flow templates available online to use but consideration should be given to taking professional advice to ensure that the forecast is as accurate as possible.

Of course a forecast is just what it says a forecast and until you start trading you do not know how things will work out.  However, if this document is going to be used to establish how much money you need to run your business it is worth doing right.

 

A few thoughts to help…

  1. Be realistic with your revenue forecasts
  2. Consider any seasonal variations that may affect revenues
  3. Remember if you are going to be offering customer credit terms they may not always pay on time
  4. Ensure you remember to account for all costs
  5. Do not forget about employment taxes and VAT

 

For some startups it may be necessary to produce a cash flow forecast for longer than 12 months.  This is often the case with tech startups looking to develop technology beyond proof of concept.  A cash flow for 24 or 36 months should be considered.

You should also allow for some contingency funding to cover unexpected events such as a slower start to generating revenues, delayed product launch and even bad weather.  It is far better to be prepared as opposed to having to raise further funds in a very short period of time which will also always be at less favourable terms.

If funding is going to be required at different stages, depending on the type of finance it may be better to arrange the entire funding at the outset.  For example, angel investors may be happy to release further funds when certain milestones have been reached.

 

In part 2 of the post we look at the different types of funding.

If you are looking to start a new venture or securing additional investment to help grow you business and require any advice about how to do this in the best possible way to suit your circumstances we would be happy to help.

Contact us

T: 01622 758257