Business tax planning

RSM Tenon is advising clients to hold off any major overhauls to business tax planning until after the Emergency Budget.

Business owners are likely to be safe from any Budget ‘guillotine’ measures and could even benefit from administrative initiatives, said the firm.

RSM Tenon's director of tax policy Andrew Hubbard told businesses not to have any knee-jerk reactions to the Budget as action may not be needed and could put businesses at a disadvantage when changes and clarifications to legislative criteria are announced.

The firm also released the following predictions: 

Capital Gains Tax:
Whilst the main rate is likely to rise to 40% for the disposal of non business assets the Government has indicated that it is keen to protect genuine entrepreneurial activities. 

This could mean that we see a further extension to Entrepreneur’s Relief from £2m to say, £5m and relaxation of some of the conditions that need to be satisfied to qualify for Entrepreneurs Relief. 

We could also see some form of taper relief for assets which don’t fall within the definition of business assets but are nonetheless used in the business.

Income Tax:
Further restrictions to tax relief on pension contributions for high earners are unlikely but the coalition could commit to another round of consultation.

The pledge not to increase employers National Insurance Contributions could be part-funded by a reform of the way benefits and other non-cash items are charged to income tax and National Insurance.  The recent chipping away at the edges is likely to be stepped up a gear – we predict that very few benefits in kind will be NIC free in the next two years.

The coalition government has already stated its intention to review IR35 and this is going to have a huge impact on consultants in the long term.

Corporation Tax:
Whilst the Coalition has already announced a likely reduction in the main rate to 25% over three years, we do not anticipate any corresponding reduction in the small company rate.

There has been a noticeable trimming away of capital allowances in recent years, despite a brief respite with to help businesses during  the recession.  We predict that these will now be cut and capital allowances on plant and machinery will be phased out over the next five years.

The two schemes available for R&D (research & development) are likely to be simplified and could be rolled into one to cover both small and large companies.

VAT:
The rise to 20% is a fait accompli.

In a move that could free up as much revenue as the 2.5% increase will raise, we expect to see a ruling to block repayments of VAT paid more than three years ago.  The Government has been hit hard in recent years with VAT refund claims and so this could ring fence much needed revenue, especially as the current debate on simple versus compound interest continues.

Inheritance tax:
No one is anticipating any change to the threshold or various allowances that are currently available.  However we do anticipate a tightening of the qualifying conditions for business property relief to prevent abuse. 

Tax administration:
Businesses need indisputable definitions and a clear set of criteria.  We think the Government will use the Emergency Budget to confirm its intention to reduce red tape and the administrative burden on entrepreneurs.  There will almost certainly be a commitment to radically simplifying the tax code over the course of the next five years as well as an announcement of a consultation on a general anti-avoidance rules for all business transactions.