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Business Tax

While Budget 2015 was all about presenting generous morsels to individuals and regions, there were relatively meagre pickings for small businesses. This is largely because most of the tax incentives for this sector were laid down in previous finance bill.

Ed Balls And George Osbourne sitting together on the BBC Andrew marr show

Has George done enough to see off Ed

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:

Class 2 National Insurance Contributions
Plans to abolish (NICs) in the next Parliament and bring in a new contributory benefit test to take the place of Class 2 payments. The government will consult on the detail and timing of these reforms later in 2015.
Annual Investment Allowance
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 the 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.
Research & Development Tax Credits
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.
Annual personal tax return
The ending of 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, accountants are already expressing misgivings, given the woeful track record of HMRC.
Capital Gains Tax
Restrictions will apply from 15 March, with wasting assets that qualify for exemption from CGT being 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.
Entrepreneurs’ Relief
This has been a success story for rewarding investment in small companies, but the Treasury has now clamped down on relief from gains resulting from the incorporation of businesses, effective from 18 March 2015. Also they also plan to restrict entrepreneur’s relief on personal assets used in a business 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.
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. 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
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 rise by a miserly £1,000 from Ist April 2015 to £81,000. After several years of more generous increases, this year’s only just scrapes over 1%. But even if the Chancellor is tightening the reins on that deregulatory measure, the UK still has the highest registration threshold in Europe.
Anti-Avoidance Measures
A new criminal offence for assisting tax evaders and an increase in ‘accelerated payment notices’ for participants in tax avoidance schemes were among a £3.1bn package of measures against avoidance and evasion in George Osborne’s pre-election Budget.
Diverted Profits Tax (DPT)
Also known as the Google tax, will take effect in April and is projected to £25m in 2015-16, £270m in 2016-17 and £360m in 2017-18. John Cridland, director general of business group the CBI, said that the diverted profits tax was “out of step” with rules against corporate tax avoidance (BEPS – ‘base erosion and profit shifting’) that are being developed by the OECD. This puts UK firms at a competitive disadvantage and could put off would-be investors”.
The DPT will make lots of headlines but it’s the increase in accelerated payment notices (21,000 more than originally expected) that will probably affect more companies and their accountants. Dawn Register, partner at BDO, said that HMRC currently wins 80% of the avoidance cases through the courts “allowing the Chancellor to be more bullish about using this area to raise further cash”.
Film Tax Relief
The amounts that can be claimed back for FTR 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.
Farming
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 recommended to the Chancellor by the National Farmers Union.
Northern Powerhouse
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 businesses is estimated at £25m.

Other Business Tax Measures

The government is to consult on proposals to introduce “new information disclosure and penalty powers” to make it more difficult for the promoters of “abusive” schemes to continue to market them in the future.

Tougher measures are to be introduced for those who persistently enter into tax avoidance schemes which fail ‘serial avoiders’, including a special reporting requirement and a surcharge on those whose latest tax return is inaccurate as a result of a further failed avoidance scheme.

He intends to stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence.

Legislation is to be introduced in a later Finance Bill that will increase the deterrent effect of the general anti-abuse rule (GAAR) by introducing a specific tax-geared penalty that applies to cases tackled by the GAAR. Vince McLoughlin, partner at Russell New tax advisers, said that anti-avoidance measures aimed primarily at multinationals may deter small businesses from claiming tax breaks they are entitled to because they are worried about being investigated by HMRC.

 

If any of you would like more detailed information on any aspect of Business Taxation, send me an e-mail and I’ll be pleased to advise further.

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