The success – or otherwise – of the recovery from recession hinges on small and medium-sized businesses, like many printers, thriving, investing, profiting and hiring. So it can be pretty galling to see corporate behemoths like Google, Amazon and Starbucks paying relative peanuts in tax through the perfectly legal (but ethically questionable) exploitation of loopholes, while smaller businesses pay out a much greater proportion of their takings into the public coffers.
That said, there must surely have been more than a few owner-managers in the print trade casting envious looks at what these companies were up to.
Stewart Sturdy, owner of Lancashire-based Sturdy Print, freely admits he is envious rather than outraged at this kind of behaviour: "It doesn’t make me angry at all. Each to their own – they’re huge companies, and that’s the way it is."
Unfortunately the average printing business doesn’t have access to the legions of lawyers and accountants that a corporate juggernaut can call upon. And most printers don’t have the in-house knowledge needed for complex feats of financial manoeuvring.
"Quite frankly, most of us know very little when it comes to tax," confirms BAPC chairman Sidney Bobb. "Most printers are small, owner-managed businesses and are interested in their customers and satisfying their needs – not necessarily their tax arrangements."
In fact, SMEs are half as likely to use tax planning to minimise their bills as the so-called ‘business elite’, according to recent research from YouGov. Even forms of tax that all businesses should, in theory, be well versed in can leave many flummoxed, with accountancy software outfit Sage reporting that up to 35% of SMEs are missing out on savings because they don’t get to grips with VAT.
So, despite HMRC’s long-running attempts to convince us of the contrary, tax can frequently seem all too taxing.
"Complexity in the tax system is often cited as an administrative barrier for small businesses, leading to increased charges by accountants and errors when filing tax returns," says Sara Crane, spokeswoman for the Federation of Small Businesses (FSB). "The FSB has been calling for greater tax simplification by the government to help small firms, and we are pleased that cash-basis accounting and new dashboards from HMRC are available to help. However, more needs to be done as we know that 50% of small firms spent up eight hours per week understanding, calculating and completing tax forms."
Seek advice
The answer, say many, is to make the most of accountants and tax advisers. "You should use your accountant as a sounding board to discuss how the business is going, plans for the future, expansion thoughts and so forth – the more they know about the business then the more they can help," says Laurence Bagley, finance director at print franchise Kall Kwik.
"You want your accountants and tax advisers to assist you to be more efficient – to ensure that you can account for all your expenses – any potential bad debts or similar. They should advise you of the most tax efficient way to earn from the business and the best way to invest into the business – their role is to help you maximise your own return."
"Small companies tend to spend most of their time and resources on getting, retaining and developing their customer base," he adds. "In common with all SMEs and micro-businesses, when it comes to tax, printers are generally dealing with matters outside their knowledge zone."
Of course this means that printers are very dependent on their advisers giving them sound advice. "This lack of time – coupled with lack of expertise and perhaps understanding – means that business owners often rely totally on advice given from third parties," says Bagley.
So just what sorts of things should they be looking, as the mark of a good accountant or tax advisor, for their adviser to be helping them out with?
Annual Investment Allowances (AIA) and Research and Development (R&D) measures are the two principle areas which HMRC itself points printers towards, as these are where the most substantial sums can be saved.
Almost all profitable commercial enterprises – printers included – can currently benefit from the AIA initiative. Here, the purchase of equipment, whether with cash or funded on a hire-purchase agreement, qualifies for an allowance of up to £250,000 in each of the two years 2013 and 2014. It’s essentially a stimulus to get companies to stir up the economy by investing in new kit.
"Structured contracts on kit leasing might be one option, whereby enhanced rentals paid during the tax year are accelerated to mirror likely profit levels and thus offset the tax due upon that profit," says Stephen Price, director at Ilsley Finance.
The capital value of the expenditure is offset in its entirety against taxable profits. Any expenditure above the £250,000 AIA maximum is subject to an additional writing-down allowance, typically of 18%.
All sorts of common items that are crucial for the day-to-day running of a print firm are eligible for AIA relief – vans, cars, tools, furniture, computers and machinery are just some of them, but the HMRC has a fairly exhaustive guide to what does and doesn’t qualify on its website.
Sturdy Print took advantage of the AIA scheme when it bought a flexo label press earlier this year. Not only was the investment tax-efficient, but it also enabled the company’s operations to take a significant step forward. "To be honest, the piece of kit it replaced was getting on and was nearly obsolete," says Sturdy.
Sturdy purchased the machinery through finance company Lombard. Perhaps unsurprisingly, an equipment-buying stimulus is a boon for firms which make money from financing big purchases, and they’ll often be falling over themselves to assist your business with the necessary paperwork to benefit from AIA.
However, you’d best get your skates on to take advantage of the AIA bonanza. The current arrangements will revert to their ‘old’ allowance of £25,000 on 1 January 2015. "Firms planning capital expenditure in excess of this amount should ensure they act before then," says Ilsley Finance’s Price. "There are rules for companies where the charge period straddles that date."
Innovators eligible
Research and development (R&D) relief is another method by which printing businesses can significantly reduce their tax burden. One company that has certainly benefitted is Printing.com.
Last year, Printing.com boss Tony Rafferty put the brakes on a proposed move to the famously lenient tax regime of Switzerland in favour of benefitting from R&D credits and staying put in Manchester. "You can save up to 31.25% of every pound spent on research and development through tax relief aimed at supporting innovation in British companies," reported Rafferty at the time.
R&D relief is available for ‘innovative’ businesses which are liable for corporation tax. A firm may only claim if it has on-going research and development projects. In turn, these projects have to be plainly seeking to achieve "an advance in overall knowledge or capability in a field of science or technology".
The definition of what constitutes R&D activity is though fairly open to interpretation, and can be much wider than you might expect. Printing.com invested significant funds into its TemplateCloud service, which was pitched as the world’s largest supply of online, editable graphic design.
Items which can be classed as R&D deductible include employee costs (so long as staff are actively engaged in R&D and contracted to your firm rather than being freelancers or consultants), utilities, software, materials and more.
Don’t miss out
But not as many firms are taking advantage of it as they could do – even though R&D tax credits are a proven way for loss-making firms to claw back capital.
Be warned though that HMRC is pretty hot on ferreting out non-R&D projects. It might well be tempting to get creative with the definition of ‘R&D’, but this could well prove unwise.
Your tax adviser should be able to help you prove a project’s eligibility for R&D relief. As can specialist accountancy firms such as Jumpstart, which concentrates on working with businesses to obtain R&D tax credits. It works with companies from project inception right through to HMRC queries and approval and completion.
Although AIA and R&D measures are the biggies, there are numerous other ways of reducing tax.
Gifts of money made to a charity by companies are deductible from the total profits of your business when calculating corporation tax. However, since charity tax relief has been introduced, there have been numerous high-profile cases of businesses and individuals using charities as a ‘tax fiddle’ – so be wary of the negative press this sort of scheme could kick up if misused.
While there is no capital gains allowance available for businesses as there is for individuals, ‘chargeable gains’ (as they’re known in industry) can be deferred by ploughing profits made on the sale of assets – land or property, for instance – back into the business, if all or part of the gains are put into a Seed Enterprise Investment or an Enterprise Investment Scheme Share.
Then of course there’s the often-tricky matter of VAT – the complexities of which printers should be well versed in, given there are so many VAT-exempt items produced in the industry.
If your firm is VAT registered, and has paid out more in VAT than it has charged to clients, then you will be entitled to a rebate.
But all of this rather appetising-sounding advice must come with a warning. While most SMEs could do with being a little more demanding when it comes to claiming back what’s rightfully theirs, there is still cause for caution.
Earlier this year, the treasury tasked HMRC with raising an additional £7bn in revenue – not exactly the sort of money that it’s possible to find down the back of the sofa. About half of this figure will come from small businesses. Which means HMRC is on the hunt.
So printers would do well to be wary of cautionary tales within their industry, such as that of Stuart Brown, a printer found guilty of fraudulently claiming VAT in excess of £95,000 last year. Brown, who ran Vivid Prints at Battery Green Road in Lowestoft, had been using his printing expertise to produce fake invoices and was subsequently jailed – a stark warning against abuse of the system.
Of course, with such a complex area as tax regulation, comes the potential for making mistakes, not maliciously, but in perfectly good faith. In this event, HMRC advises swift action.
"Any business that thinks it has made errors should get in touch with HMRC at the earliest opportunity. The easiest way is to contact their local tax office," advises Jan Marszewski, spokesperson for HMRC.
But hopefully there will be far more printers getting their tax affairs right – and with some aplomb – in the near future. Finding the silver lining to Google and Starbucks’ exploits of late might seem tricky. But one definite plus would be if it spurred printers, armed with just a bit of awareness of what’s out there and with advice from their accountant, to claim back what they’re owed.
Making tax less taxing
- Think twice about going DIY Taking on the tricky business of company accounts yourself might seem like a reasonable idea in hard times. But the expertise of a pro can save you headaches – and money – down the line. They’ll also be able to help you identify areas in which you could be operating more tax-efficiently.
- Do expenses as and when they happen After all, who wants to be racking their brains about what that train ticket two years ago was for? With HMRC demanding you keep expense forms going back six years in case they come knocking, it makes complete sense to log your business expenses on your computer rather than the trusty old spike.
- Stay informed It’s the job of tax advisers to stay on top of every little nuanced development in the (perhaps not-so) exciting world of taxation. But staying informed yourself will help you keep your advisers on their toes.
- Make HMRC your friend It might be fairly heavy-going, but the HMRC website is a treasure trove of tax-related information. It offers business advice emails, new-fangled tax ‘webinars’ and bite-sized YouTube videos full of useful tips.
- Get your priorities right Your tax planning objectives should fit around your business objectives, not the other way around. Discuss with your accountant your plans for the year, and then the benefits you can get from the tax system accordingly.
How R&D Tax Credits stopped Printing.com from going Swiss
Printing.com, one of the country’s most high-profile retail print outfits, was faced with an uncomfortable conundrum over its tax affairs.
"Ten years ago, we wanted to revolutionise the print shop. In 2011, we decided we wanted to revolutionise the online print business," recalls chief executive Tony Rafferty. "We wanted to develop a web-to-print app that would work automatically - something that was once quite a technical, fiddly task."
Revolutions don’t come cheap, and the AIM-listed company’s TemplateCloud project required serious investment. "We pay taxes in the UK, but 35% of my shareholders aren’t residents here and don’t care if we pay tax in the UK or not. We’re competing with businesses in low-tax countries, and we were giving serious consideration to moving to Switzerland."
Moving to the shores of Lake Geneva – a favourite location for corporate big-hitters – was a big step. "You can’t just put a brass plate on a lawyer’s door any more – we would have had to move our offices and innovation to Switzerland too, and were looking into the practicalities and living arrangements," says Rafferty.
The business that Rafferty had built up from a Manchester base to an international concern was facing the very real prospect of upping sticks and taking its headquarters out of the country. "It didn’t make us feel good – but if we wanted to compete, it had to be done. Unless, of course, there was a level playing field."
That leveller proved to be R&D tax credits. "If you take into account the R&D and tax credits and reduced corporation tax, the UK is a pretty good place to domicile your business – and when you add all these
things together, you can do the right thing," says Rafferty. "It also made sense to keep the intellectual property here."
While the Printing.com project was a significant one, and not the sort of thing which is an everyday occurrence in the industry, Rafferty recommends printers take advantage of the scheme if they can. "Printers who are developing coding might want to talk to their accountants about the merits of applying for R&D tax credits," he advises.
