For those small enough to qualify, the extension of the doubling of Small Business Rates Relief until April 2016 will certainly be welcome.
However, the Chancellor dealt a blow to sensible tax planning with his announcements around incorporation. Previously, if a sole trader or partnership transferred their business to a limited company, we would often look to value the “goodwill” of the business. This could be “sold” to the new company, in exchange for an IOU, which could be drawn down on, tax-free, when the company had made sufficient profits. The sale of the goodwill was subject to Capital Gains Tax, but Entrepreneur’s Relief (ER) usually reduced the rate to just 10%, which gave a substantial saving compared with taking money out in future as dividends subject to the higher rate of income tax. In future, ER will no longer apply, and nor will any corporation tax deduction for the goodwill. Together, these essentially stop this sensible planning in its tracks. This is unlikely to stop the attraction of incorporation, but does remove the “icing from the cake”. If you’ve already done this don’t worry; the changes are not retrospective.
It seems unlikely that SMEs will be too concerned by the new “diverted profits tax”, which taxes profits diverted offshore at 25%. However, we have yet to see any detail on this key proposal.
Once again, R&D tax credits improve, with the SME rate rising from 225% to 230%, and the large companies above the line credit from 10% to 11%. Many companies still don’t realise they qualify, and those involved with areas such as manufacturing, software and technology, amongst others, should take advice.
A further incentive to get the young into work will see employer’s NIC effectively abolished for apprentices under the age of 25, which is on top of the previously announced abolition of employer’s NIC for all under 21s from April next year.
On NIC, The£2,000 employment allowance is also extended to care and support workers.
The further rise in the personal allowance will help business owners, as will the fact that this time around it is being handed on to higher rate taxpayers with a rise to the higher rate threshold.
Overall, the key message for business remains to do your homework, and make sure you maximise your use of reliefs and allowances.
For further information of advice on any of the above issues please contact Robert Leggett.