As every business owner and most employees, find themselves working from home more than ever before it is important the that the tax implications of this new way of working are understood.
New tax year, new Employers Allowance claim….or is it?
For small employers, the news that the Employer’s National Insurance Allowance (“EA”) has been increased this year from £3,000 to £4,000 is good news… or is it?
Not necessarily so, because for some of you it may drop to nil. From 2020/21 the EA has been classed as de minimis state aid. Let’s understand what this means before diving into the world of many Blu Sky clients.
What is state aid?
Very briefly, State aid can be in the form of grants, loans, and tax breaks. As the name implies, it’s aid from the state, so EU grants, for example Horizon2020 don’t count as state aid.
State aid can generally be grouped into two categories, de minimis and notified state aid. We’re concentrating on de minimis here.
You can (with a couple of market exceptions) receive up to €200,000 in de minimis aid in any rolling 3 year period. De minimis allows small amounts of aid to be given without the EU needing to be notified. If in receipt of de minimis you must keep records.
You must not breach this limit, if you do, the aid may be withdrawn.
Employers Allowance of £4,000 out of €200,000- that’s ok?
Not if you’ve used a substantial portion elsewhere. SEIS is a case in point. Just raised £150,000 through SEIS? Got a couple of other de minimis grants? You will be dangerously close to the limit. Let’s not compromise your SEIS status!
The limit is in euros, so how do we know how close we are? You need to refer to Commission exchange rate applicable on the written date of offer of the de minimis funding. For SEIS that’ll be the date of share issue. We believe that will also be the case where an advance subscription agreement has been in place. The exchange rate calculator on a month by month basis is available here.
As an example, a £150k SEIS raise in January 2019 converts to €166,162 and the £4,000 EA allowance this month converts to €4,499, together they are getting very close to the limit.
What else do you need to know?
- Is your grant de minimis? If it is, it will say so in the paperwork. Read the detail!
- EIS is state aid, but not de minimis (as you can probably work out from the limits). However, the limit of £5m a year includes other Venture Capital schemes such as Seed Enterprise Investment Scheme, Venture Capital Trust and SITRA.
- The Research & Development (R&D) SME scheme is notified state aid, so does not impact on the limits above, and is not impacted by indirect de minimis, but beware of grants in research projects as only one state aid can be claimed. A very small grant will potentially lose your R&D SME status and mean you will need to claim the much less generous RDEC scheme.
- Small grants from the state, for example those from NBSL, tend to be de minimis.
- Grants from the likes of InnovateUK are state aid under General Block Exemption Regulation (GBER) so details of the program are submitted and approved in advance.
For some the increase from £3,000 to £4,000 is good news however, for businesses with that have are close to de minimus limit – it may not be good news! If you’re unsure of this, or you want to help formalise your records and the relevant currency conversions, please speak to your Blu Sky Account Manager
We’re excited to announce the launch of or brand new Startup Club! A place you can come to get all the sound advice and support you need, so you can focus on kickstarting your business.
This year has brought a lot of challenges to say the least, so to help us help you, Jonny Smith has joined us as one of (now) four Client Relationship Directors.