17/05/2015 by David Gibbens, Director, Poole Waterfield
In my last blog I touched on the areas of tax that the new government have promised not to change; Income Tax, National Insurance and VAT. If we take that at face value and working on the assumption that spending cuts, economic growth and clamping down on tax evasion do not eliminate the deficit, then what other tax measures might they take, particularly in respect of business?
George Osborne has proven to be an imaginative chancellor, with far reaching and unexpected changes to private pensions already on his CV. So we know that he is unafraid of tackling sacred cows, finding radical solutions and springing the occasional surprise. We also know that supporting businesses, particularly technology and manufacturing businesses, is likely to be a big part of his plan. With that in mind you would expect the government to favour, or at least preserve, tax breaks associated with technology such as Research and Development Tax Credits and Patent Box. These are really useful reliefs, particularly R & D, and they both appear to be on an upward path. There is clearly political capital in reliefs that encourage progress, growth and jobs, but with the constraints that he is bound to be under, it wouldn’t be a huge surprise if the qualifying criteria for reliefs such as these were tightened by the chancellor at some point.
In his last budget in March, the chancellor indicated that the Annual Investment Allowance, which gives 100% tax relief on plant additions of up to £500,000, was not going to revert to a figure as low as the scheduled £25,000 level in January 2016, but no indication was given as to what the new limit might be. At the time of writing we remain in the dark and it may not be clear until the next Autumn Statement. Uncertainty such as this isn’t helpful to businesses who want to plan their capital expenditure, so it is hoped that some clearer message comes through. He has obviously left the door open for a reduction to the allowable limit and that would make the timing of acquiring plant critical to the Corporation Tax bill at the end of the year. This is also complicated by the mechanics of the calculation when the limits do change and it is vital to get early advice as there can be nasty surprises if the timing of the capex is wrong (or it’s the wrong sort of asset). For the present we have to wait and see.
Other generous reliefs which are likely to be in the chancellor’s sights are Land Remediation Relief and Business Premises Renovation Allowance. These offer tax relief for businesses (or in some cases individuals) which improve land or buildings, for instance by removing a contaminant (such as asbestos) or by bringing an empty commercial building back to use. These allow expenditure which might otherwise be treated as capital to be taxed as an expense, and in the case of LRR there is an uplift of 50%. There are all sorts of qualifying criteria, for instance with BPRA the property needs to be in a designated disadvantaged area. BPRA is scheduled to end in 2017 anyway and LRR has been expected to disappear for several years, so it would be no surprise if both of these reliefs are long gone by the end of the parliament. Given the chancellor’s emphasis on the “Northern Powerhouse” there is clearly scope for a more localised regeneration style relief, but it may be that he sees new institutions (such as the Manchester based Royal Institute for Advanced Materials), investment in infrastructure and more devolved power as the means of achieving a “rebalanced economy” rather than through tax measures.
One business relief that has been with us in different guises for many years is Entrepreneurs Relief (previously it was Taper Relief and even Retirement Relief for those with long memories). This must rank as one of the most treasured reliefs for business people who are intending to sell or wind up their businesses. As with all reliefs there are tax traps for the unwary, but for those who do successfully qualify it reduces the Capital Gains Tax on the disposal of trading businesses down to 10% (with a lifetime limit of £10million gain!). This has the potential of saving an entrepreneur up to a maximum of £1.8million on the disposal of a share in a business. Alistair Darling, when he was chancellor in 2008 had to backtrack very quickly when he tried to abolish this relief’s predecessor, which is how ER came into being in the first place! It would be odd for a Conservative chancellor to revisit this question in quite the same way but times have changed and I wouldn’t rule out some change that might surprise us all. He’s done it before!
Although we can’t predict the future we can help businesses of all sizes discuss their plans and what the tax implications, and solutions, might be. Please contact me, or any of my colleagues at Poole Waterfield to discuss how we can help on 01384 455505.
Category: David Gibbens Blog Author: David Gibbens, Director, Poole Waterfield