The past few months have been challenging for the majority of businesses throughout the world, requiring companies to juggle various important factors such as staffing levels, financing options and cash flow implications, let alone the issues and changes arising in everyone’s personal lives.
This has obviously had a significant impact on the UK economy with reports estimating a contraction by 20%, nearly three times greater than the start of the 2007/08 recession. This decrease has, and will continue to, impact all companies.
Corporation Tax Losses
The majority of UK companies are unlikely to be ‘in the green’ for the accounting year in which lockdown has occurred.
Where losses have arisen in this period, these losses should be able to be carried back to the previous taxable period to offset against any taxed profits. This can create a cash repayment for the company or create a credit for offset against the company’s current outstanding tax balances. Any surplus tax losses are available to be carried forward to offset against total income in future periods.
Additionally, should the company be involved in Research & Development activity, its qualifying R&D expenditure can be enhanced to reduce tax balances with any losses available for surrender in return for a cash repayment subject to meeting qualifying conditions.
Therefore, material benefits can be accessed by seeking to submit Corporation Tax returns as soon as possible once the accounting period has ended to secure possible repayments quickly.
Employees are fundamental to the success of any organisation; attracting and retaining key individuals is challenging. More than any process or procedure people create value in business therefore, the creation of motivation and drive in these challenging economic times can be an important ingredient in the quest for a profitable recovery.
Increasing salaries and making bonus payments are two of the simplest ways to incentivise staff. However, in this challenging economic time, with tighter cash flows and budget cuts, this can be difficult to achieve. As a result share based incentive arrangements can provide the solution to securing motivated and loyal staff.
Furthermore, with Covid depressing the value of many companies, these depressed share prices can reduce the tax costs of establishing share incentives, making it a worthwhile time to consider introducing an employee share incentive. The most popular is the Enterprise Management Incentive (‘EMI’) Share Option Scheme.
Enterprise Management Incentives (‘EMI’)
EMI remains the most popular employee share reward given the favourable tax treatment for the recipient:
- No Income Tax on grant or exercise of the option, unless it is granted at a discount
- Capital Gains Tax, normally at 10% due to Entrepreneurs' Relief, on the sale of shares
This provides a tax benefit for the employee while the employer has flexibility to align the criteria to deliver each employee’s incentive to the company’s strategic objectives.
The currently depressed share value will result in less Income Tax exposure if the options can be exercised at less than market value. An EMI scheme normally also provides the issuing corporate a significant tax deduction where EMI options are exercised.
There are multiple other ways for a company to incentivise their staff cost and tax effectively. For more information, or to have a general discussion on what can be achieved, contact Derek Gemmell (email@example.com) or your usual AAB contact.