Issue link: https://htpgraphics.uberflip.com/i/246991
Tax Issues Section 7 question of having to get the shares back from him or her. Certain types of share option can be particularly tax efficient. WHY USE SHARE OPTIONS? to attract key employees to the company and encourage them to remain with the company n to incentivise employees (eg an option will only be exercisable if performance targets are met) n to provide benefits with modest direct cash costs to the company – useful for spin-out companies n Tax and the Company The company itself is a separate legal entity and taxed separately. It pays corporation tax on its profits. These are calculated by reference to the company's accounting period, which is established when the company is formed. It is calculated on the basis of a self-assessment tax return, which has to be submitted within 12 months of the end of the company's accounting period. In the early days (possibly for several years) the allowable expenses of the company will be more than its total turnover and so it will have tax losses rather than profits. So no corporation tax will be payable. Companies conducting R&D in the UK can get an R&D tax credit if they are in profit and paying tax. There are credits available to some loss-making companies. The rules are complicated, for instance not all R&D qualifies for the R&D tax credit. There is also something known as Patent Box which can give a 10% corporation tax rate for companies commercialising patented inventions or certain other plant breeder or variety rights and marketing authorisations for medicines or plant protection products. You should get advice from specialist tax advisers to make sure your spin-out gets the full benefit. The company will also need to deal with things such as payment of PAYE and NIC in relation to its employees. It is also important that the company registers for VAT. HM Revenue & Customs' website has guides to assist (www.hmrc.gov.uk). You should ensure the company has appropriate bookkeeping and accounting support to ensure full compliance. 44