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Business tax summary: Osborne woos business with investment treats

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20th Mar 2013
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The Chancellor has announced a raft of Budget tax measures to encourage business investment and growth, including £2,000 in national insurance contributions (NIC) relief for all businesses. But with little detail available, reactions were mixed.

Contents

Employment allowance: £2,000 NIC break unveiled for 2013-14

In a bid to help drive growth, from April 2014 the government will introduce a new “employment allowance” that will reduce each company's NIC bill by £2,000.

Osborne said the allowance will mean 450,000 small businesses will pay no “jobs tax” at all. Up to 1.25m employers are set to benefit, with more than 90% of the benefit going to small businesses.

The Treasury document explained that every business will be able to employ one worker on a salary of £22,400, or four employees working full time on the adult National Minimum Wage, without paying any employer NICs at all.

TaxCalc’s Alex John said during AccountingWEB's live blog that the move would have a “really big impact” on small business. “For small businesses that are trying to grow, the cost of employing someone is a bit of a blocker, and this new measure goes some way to alleviating that cost,” she said.

Employee shareholder status

In his Budget announcement, Osborne confirmed that the first £2,000 of share value that anyone receives in return for giving up certain employment rights will be free from income tax and NICs. This will take effect from 1 September 2013.

"Employee ownership helps create an enterprise culture," the Chancellor said. "So we’re making our new employee shareholder status more generous, with NICs and income tax relief.

Gabelle's Paula Tallon welcomed the income tax and NIC exemption. "Without this the proposals were not attractive," she said. However she suspected that the take-up for the Chancellor's scheme may not be overwhelming. "Some FDs I have spoken to about this have told me that they would not be recommending giving up employment rights for shares to their board."

PKF remuneration partner Philip Fisher was also unmoved by the Chancellor’s Budget offerings in this area: “No PAYE on up to £2,000 of shares might benefit those who want to take advantage. But I doubt many smaller private companies will want to do it,” he said.

Corporation tax moves towards single 20% rate in 2015

The new allowance, which could potentially encourage small businesses to employ more people, comes alongside a reduction in corporation tax to 20% in 2015, following the previous cut to 21%.

“That’s a tax cut for jobs and growth,” George Osborne said during his speech.

The Chancellor had previously stated that a tax rate of 20% was an aspiration and it would simplify the tax system by having a single rate of corporation tax for all companies.

Francesca Lagerberg, head of tax at Grant Thornton said the good news was undoubtedly in short supply, “but we did get a commitment to a further reduction in the mainstream corporation tax rate – down to 20% in 2015, making us one of the most competitive countries in the EU on this measure,” she said. “It also removes the complexity of having a mainstream as well as a small companies rate at a stroke.”

Capital gains tax relief for SEIS shares

The Chancellor also announced that the government will give capital gains tax (CGT) relief on sales of businesses to their employees. The measure will extend CGT relief for re-investing gains in Seed Investment Enterprise Scheme (SEIS) shares during 2013-14 or the following year.

Katharine Arthur, tax partner at MHA MacIntyre Hudson, welcomed the extension of the CGT holiday: “Extending the timeframe in which gains can be reinvested and still be exempt from capital gains tax gives added flexibility and encourages further reinvestment in young businesses.”

The SEIS, launched at Budget 2012, offers 50% income tax relief on investments made into small, early-stage companies. This extends the CGT holiday available for 2012-13, but as Giles Mooney noted, “The SEIS extension for CGT is only for half of the investment – in 2012-13 it was for up to £100,000.”

Commenting on promoting employee ownership, Francesca Lagerberg said: “There will be a consultation on a new capital gains tax relief on the sale of a controlling interest in a business, but this measure will not see the light of day until 2014.”

According to the Treasury document, the government is providing £50m annually from 2014-15, which will be used to respond to recommendations from the Nuttall Review and other relevant organisations who aim to encourage employee ownership.

“It will also be used to fund the introduction of a capital gains tax relief on the sale of a controlling interest in a business into an employee ownership structure.

“Consultation on this measure will take into account the progress of work by the Department for Business, Innovation and Skills (BIS) and the Implementation Group to develop an ‘off the shelf’ employee owned company model, with the intention that the new capital gains tax relief will be introduced in Finance Bill 2014.”

Stamp duty exemption for growth market shares

The government will bring forward legislation taking effect from April 2014 to abolish stamp duty on shares traded on the Alternative Investment Market (AIM) and other "growth" exchanges. It also proposes the abolition of the 0.5% stamp duty reserve tax charge on shares in unit trust and open-ended investment companies (termed by the Chancellor as "schedule 19" funds).

Little detail was provided beyond the Chancellor's comments. HMRC’s OOTLAR document merely confirmed that the government intends to consult this year on the two ideas, and that the growth markets would include both AIM and such as the and the ISDX Growth Market.

R&D tax relief

Osborne also introduced new tax relief for social enterprise, stating that research and development was central to the UK's future with a 10% tax relief on R&D.

Caroline Hunt, tax director at Crowe Clark Whitehill said the change to the R&D regime will allow large companies to claim “above the line” tax credits.

“In the right circumstances these can be converted into cash at the rate of 9.1%. Large loss-making companies could now get a real benefit from claiming the credits – whereas previously they just increased the losses,” she said.

Also explained in the OOTLAR document, the government will consult on options to provide further support to the visual effects industry through the tax system, however no further detail is provided.

Company cars - new low emission bands

Two new Finance Bill 2013 clauses will introduce new percentage bands for company cars emitting 0-50g of carbon dioxide per kilometre (with appropriate percentage set at 5%) and 51-75g CO2 per km (with the appropriate percentage set at 9%). The autumn statement set out a schedule of rates through to 2017, starting with a 5% rate for 75g limit and below; what the new clauses will do is bring in new bands for even lower emission cars to apply from 2015.

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Replies (2)

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By Steve-EBL
20th Mar 2013 16:59

Corporation tax

Its an amazing thing the converatives have done reducing corporation tax.  The US has 40% tax on corporate incomes (state/federal) we will have 20%.  This surely is going to make the NPV of future cashflows for companies taxed in the UK significantly healthier.   I think this makes me bullish about the UK, but not much debate about this in the press?

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By Ted Numbers
21st Mar 2013 17:46

Nic break

I think 2013-14 in the header is misleading. It doesn't seem to come in until 2014-15.

It is at least a small step in the right direction but I doubt it will be enough to make a big difference to employment. There are too many other disincentives as well.

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