Top Tax and Compliance Tips from the Tech Accountant

Guest blogger: Steven Sandford of Davis Grant



With our TechHub Resource Centre session coming up on Jan 23rd, I thought we�d get the ball rolling with my top tips for start-ups. Here goes!



1. Tax Compliance - VAT

As well as standard compliance aspects required by all companies such as year end financial statements, of particular note to start ups are the compliance aspects relating to VAT. Many start-ups are surprised when I tell them that they can voluntarily register for VAT, despite not exceeding or being near the compulsory VAT registration turnover limit of �79,000. Indeed, as obvious as it may sound to some, start-ups can receive VAT repayments for a lengthy period of time, especially if say the app was not intended in the immediate short term to be revenue generating but initially focussed on critical mass of users.

In addition, in our global market, VAT is becoming increasingly complex, with an app able to be downloaded around the world in an instant. This leads to VAT questions such as:

  • Is the app download a sale to each one of the individual users or to the platform such as Google Play or Itunes? (unsurprisingly Google Play and Itunes differ in their VAT treatment!)
  • Does the location of the supply have an impact?
  • Does where your servers are located play any part?

In short, ensure you have spent appropriate time investigating the VAT impact well before launching your app or product.



2. Tax incentives

It goes without saying that the government sees start-ups, especially in the tech sector, as our new manufacturing industry and is simply falling over itself to offer tax incentives, tax breaks and even cash back in many cases. These incentives can instantly make a start up more attractive:

  • Seed Enterprise Investment Scheme (SEIS) � the scheme allows investors to benefit from highly attractive personal tax reliefs on investments in shares of a new start-up company. These include:

    • 50% income tax relief (maximum of �100,000 in a single tax year).
    • 50% capital gains tax re-investment relief in 2013/14 and 2014/15.
    • The SEIS Investment itself can be Capital Gains Tax free on exit after 3 years.
    • Loss relief available in the event the company should fail.

HOWEVER BE WARNED!! � there are many SEIS disqualifying events, such as the number of employees and the gross assets of the business that you need to watch out for. Ensure you obtain appropriate advice so that your start-up remains as attractive as possible to investors.

  • Enterprise Management Incentive Options (EMI Options) - when a start-up commences its business journey, cash flow and burn rate are of paramount importance. However, at the same time as managing cash you also want to attract great people to work for you, who believe and buy into your product. EMI Options help solve this problem by:
    • Providing an attractive total reward package even if initially the basic salary component is below market rate
    • Providing employees with a long-term incentive
    • Creating a feeling of ownership in the business leading to increased loyalty
    • Potentially offering a tax effective method of rewarding the hard work of employees

(Source: http://www.rm2.co.uk/start-ups/)



For initial research into EMI Options HMRC provides a useful online guide

  • Research and Development (R&D) Tax relief and cash back � The R&D tax relief has been around for a number of years but has grown in prominence within the start-up sector due to the ability to turn expenditure on R&D into tax relief and more vitally into actual cash. We recently assisted an app developer client in obtaining �204,000 from HMRC on an R&D spend of just over �1,000,000 which was a fantastic help at a critical time in their start-up. If your product will lead to advances in science or technology do not overlook this highly beneficial tax incentive.





Steven Sandford is a Partner at DGIT,
Davis Grant LLP, incorporating DGIT, are accountants, tax and business advisors based in East London. Our expert team, which includes specialisms in the tech and digital sector on top of traditional business, are ready to discuss any of the above with you, and more. Please contact Steven on 020 8477 0000. Or see us at www.davisgrant.co.uk, LinkedIn and Twitter.