Tax expert Sharon Omer-Kaye, shares her thoughts on what the Autumn Statement means for you as a business owner.
As we move into 2015, having celebrated another new year, listened to the Chancellor’s statement and no doubt over indulged, it is time to pause and reflect. 2015 may be tough with economic and political uncertainty, the election and a clear need to tighten the belt. What does this mean for you and your business?
It is clear that tax revenues have disappointed. With a rising personal allowance, reducing corporate tax rates coupled with depressed personal and business profits, this isn’t surprising. The promised fiscal surplus for 2018/19 may be difficult to achieve with spending cuts alone so it is hard to see how this will be achieved without increasing future taxes. Given the election, it’s unlikely that any significant unannounced measures will be introduced before May, but highly likely that what we currently take for granted may be changed post-election with little prior fanfare. As such, the message is ‘if you are thinking about making personal or business changes, think carefully about your timing while we have relative certainty with the tax landscape’.
For example, Business Property and Agricultural Property reliefs, which provide up to 100% relief from inheritance tax, have remained unchanged for a considerable time and the protection these have afforded has reduced the inheritance tax take substantially. With increasing challenges on claims and increased investment in land or businesses one could surmise that these reliefs are ripe for change. If succession planning is in your mind, should you delay action when you have certainty?
For many years we have reflected on the best business structure, incorporated or unincorporated. It has been a routine tax efficient plan to move from a sole trader or partnership arrangement into a company with the business goodwill value qualifying for entrepreneurs’ relief. Entrepreneurs’ relief currently results in only 10% capital gains tax while creating a company credit to draw down tax free as cash becomes available, this enables cash extraction at a 10% tax rate with lower corporate tax rates on future profits. From 3rd December 2014 this planning is no longer effective so careful reviews will be required to achieve future corporate benefits.
Companies which own residential property worth more than £500,000 face significant tax charges with the ‘Annual Tax on Enveloped Dwellings’ rules and should be reviewed prior to April 2015.
We continue to see increases in Research and Development Tax Credits with further extensions to these in April. SME’s can claim 225% of their R&D expenditure (increasing to 230% in April) against their profits. R&D is not always obvious and many businesses overlook this relief, so a careful review of these credits is essential.
The simplification of the expenses and benefits system should ease the business compliance burden with the introduction of a £50 exemption for trivial benefits (i.e. flowers for a staff member or Christmas gifts). Another welcome announcement is the abolition of employers National Insurance Contributions (up to the upper earning limit) for apprentices under age 25. This will be very useful to many SME’s.
Overall though, we continue to see a drive to tackle perceived tax avoidance as a means to increase the tax revenues, with the need for careful planning to avoid the various pitfalls that continue to emerge. As always, there are plenty of opportunities to safely navigate you and your business through 2015 and beyond.
Pictured above: Sharon Omer-Kaye, Tax Partner Baker Tilly, Swindon office