Small business tax: More tweaks for CGT relief

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While Budget 2015 was all about presenting generous morsels to individuals and regions, there were relatively meagre pickings for small businesses - mainly because most of the tax incentives for this sector were laid down in previous finance bills, including this year’s edition, which is due to appear  on Tuesday 24 March.

Inevitably with the general election so close, some of the Chancellor’s more tantalising announcements are speculative; even he can’t be that certain of being around to see them through to actual policies. Among the ideas intended to encourage small business owners to vote for his party are:

  • Plans to abolish Class 2 National Insurance contributions (NICs) in the next Parliament and bring in a new contributory benefit test to take the place of Class payments. The government will consult on the detail and timing of these reforms later in 2015.This would be a very welcome change, noted Rebecca Cave, but why did the government bother to amalgamate Class 2 with self assessment? “If they were going to abolish why not from now rather than messing around for a year?” she asked.
  • Annual investment allowance tease - during his speech the Chancellor said that after last year’s AIA boost to £500,000, a “reduction to £25,000 would not be remotely acceptable”. He promised it will be set at a much more generous rate - but deferred telling us what that will be until the autumn statement.
  • A major review of business rates - as promised in the autumn statement. Any findings and conclusions will be reported back before next year's Budget. In the more immediate future Small Business Rate Relief, which gives small businesses that are not based at home 100% relief from business rates on their premises, will be extended to April 2016 (as announced in December). 
  • Measures to improve the accessibility of R&D tax credits for smaller businesses over the next two years, including better guidance for smaller firms.
  • Car benefit rates for Ultra Low Emission Vehicles will increase more slowly than previously announced - starting from 2019-20. Rates for other cars will increase by three percentage points.
  • Abolition of the annual personal tax return - ending this annual nightmare might well be welcomed by business people across the land, but have they taken a moment to wonder what might take its place? Not surprisingly, their accountants are already expressing misgivings.

CGT restrictions apply from 15 March

Unfortunately it is also customary on these occasions to encircle new reliefs and business friendly policies with anti-avoidance measures to ensure that nefarious scheme providers are unable to construct abusive shelters around them.

Entrepreneurs’ Relief has been a success story for rewarding investment in small companies, but after clamping down on relief on gains resulting from the incorporation of businesses in the Autumn Statement further Finance Bill 2015 clauses, effective from 18 March 2015, will restrict entrepreneurs’ relief on personal assets used in a business only when someone makes a “meaningful withdrawal” from that business. The benchmark for this definition will require any disposal to represent at least 5% of the individual‘s shareholding in the company or partnership. Another ER/CGT measure effective today targets “contrived ownership” arrangements that allow individuals to take a small indirect stake in a trading company to benefit from ER. The change will require those who benefit from ER to have a direct 5% shareholding in a genuine trading company. As they take effect, the measures is expected to save the Treasury around £90m a year. Both of these loopholes have been around since ER was introduced in 2008 in a particularly badly drafted piece of legislation, noted Rebecca Cave. “They are trying to catch people at the margins. I don’t think they will affect many ordinary businesses that are selling up.” EY added that in spite of the tweaks, “Entrepreneurs Relief remains a useful aid for genuine entrepreneurs.”

In another minor tweak to CGT rules, wasting assets that qualify for exemption from CGT will be restricted to those that have been used in the business of the person disposing of it. The changes will take effect for gains accruing on/after 1 April 2015 for corporation tax purposes and 6 April 2015 for CGT purposes.

Restriction on “loss refreshing” for corporation tax relief

Companies that carry forward reliefs on previous years’ profits will need to jump through a new set of hoops from 18 March 2015 designed to prevent loss refreshing arrangements designed to give access to more flexible in-year tax relief. Arrangements will no longer be allowed where they appear to be specifically designed to accelerate brought forward losses and create new in-year losses or deductions and where the tax advantage is likely to be worth more than any other aspect of the arrangement.

VAT threshold raised to £81,000

The annual increase in registration and deregistration thresholds for VAT are one of the few Budget provisions that will be enacted before the general election, and will go up by £1,000 from 1 April 2015 to £81,000. After several years of more generous increases, this year’s only just scapes over 1%. But even if the Chancellor is tightening the reins on that deregulatory measure, the UK still has the registration threshold in Europe.

Creative industry reliefs extended

The amounts that can be claimed back for film tax relief will increase to 25%, and orchestras and children’s TV gameshows will enjoy similar government largesse. The qualification criteria will also be relaxed for high-end TV programmes, with the minimum UK expenditure requirement dropping from 25% to 10%. Another £8m is being set aside to support the video games industry.

Agriculture

Could the government be worried about the rural vote? One of the first tax measures mentioned by the Chancellor is his Commons speech was to increase from two to five years the period over which farmers are allowed to average their profits for income tax. This will enable them to cope better with uncontrollable factors such as bad weather. The measure will add a bit of complexity to farmers’ tax calculations, but was recommented to the Chancellor by the National Farmers Union.

Northern Powerhouse - compensation for energy intensive manufacturers

While keeping a tight hold on the purse strings elsewhere, the Chancellor continued to bang the drum for his “Northern Powerhouse” strategy - promising dollops of cash for local technology initiatives as well as the grander HS3 railway project. Noting that around 80% of energy intensive manufacturing businesses are based in the North of England, Scotland and Wales the Budget promised that compensation for the indirect costs of small-scale feed in tariffs (FITs) will be brought forward to as soon as is allowed when state aid approval is received in 2015/16. The benefit to these business is estimated at £25m.

About John Stokdyk

John Stokdyk, AccountingWEB head of insight

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.

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By cfield
18th Mar 2015 17:44

Deeds of variation

Did George Osborne talk about changing deeds of variation just to have a cheap jibe at Ed Milliband? It would be a sad day indeed if laws are changed simply to have a joke in the House of Commons.

Most DOVs simply allow IHT relief that would have been allowed anyway if the deceased had done some simple tax planning, so I don't see anything particularly wrong with them. Why is there a need to change the rules?

Thanks (1)
18th Mar 2015 18:34

He did indeed

There's a bit of c overage of this in our Budget 2015 anti-avoidance round-up.

From the official speech transcript, here's what the Chancellor said: " can also tell the House that we will conduct a review on the avoidance of inheritance tax through the use of deeds of variation. It will report by the autumn."

I'm sure that the then made a jibe about those who use such deeds with some kind of reference to Milliband - but it looks like that shot wasn't included in the speech given to the GOV.uk web team.

Thanks (0)
19th Mar 2015 10:23

Corporate partnerships

No mention is made above of the sideswipe at corporate partnerships whereby shares in such partner companies no longer qualify for ER unless they trade in their own right. To bracket this with joint venture companies seems somewhat chalk and cheese. As corporate partnerships were generally set up to save tax tackled by legislation last year this just strikes me as sour grapes to strike at corporate partnerships established before the new rules were introduced.

Thanks (1)