Insights

Each year at Budget time we consider how positive the announcements are for owner managed businesses in particular. For instance, the news of the corporation tax reduction to 20% from 2015 is for those paying the main rate and not relevant for small businesses. Similarly the extension to the ‘above the line’ R&D tax credits initiative is also for larger companies only. This blog has also been published in Growth Business magazine.

Much of what was covered in the Chancellor’s speech today was already announced in the Autumn Statement, but we still managed to have a few additional surprises.

For instance, we weren’t expecting the news that new capital gains tax (CGT) breaks were being introduced for companies who ‘sell their businesses back to employees’. Maybe the Chancellor wasn’t planning this one either, because the detail around what this actually means hasn’t been announced yet. Apart from the initial headline, there’s no mention of it in HMRC’s notes. We will have to look out for the update and report back then. Perhaps it’s a way for the Government to encourage serial entrepreneurialism? By helping entrepreneurs to go ahead and develop new ventures based on visionary ideas, and then sell them to the employees that helped bring them to life, leaving them free to work on their next start up idea? It’s a very sustainable approach to promoting entrepreneurialism.

There was also a fleeting reference made to tax and NI benefits for employee share schemes; these already exist but the suggestion was there would be (favourable) changes. Again there is no further detail available at the moment, so watch this space!

What else was interesting in this Budget? We have known the Coalition Government was planning to raise the personal allowance threshold to £10,000 since their inception. Now, we hear that the date this will come into effect is being brought forward by a year to April 2014. It sounds like good news for the masses but in reality, it’s just a bit of mathematical massaging for the majority of tax payers.  Whilst the increase in personal allowance is the headline news, there is no mention made of the decrease in basic rate threshold that has been made. The effect of this is that most basic rate taxpayers are unlikely to notice any difference in their tax liability. For an unfortunate few there is even the possibility that they could be worse off (if their income is near the top end of the basic rate threshold).

The government also announced an ‘Employment Allowance’ of £2,000 per year for all businesses to offset against their employers’ NI liability.  The allowance will be claimed as part of the normal payroll process through RTI and comes into effect from 2014. Exact details will be formulated after a Government consultation, with full legislation coming later in the year – probably in the next Autumn Statement.

Finally, for companies targeting the public sector, the Government has pledged to increase by five fold, the proportion of procurement budgets spent with small businesses through the ‘Small Business Research Initiative’. This is a measure we shall have to monitor carefully. Is it a way of supporting businesses who are genuinely providing public sector support? Or a way of helping public sector workers cushion an inevitable move into the private sector (to avoid being unemployed)? In other words, will this be a way to help them become successful with any new ventures, taking the pressure off government departments in the wake of continued spending cuts? Especially since the government has such a big a vested interest in making this work. Just as with the announcement about apparent additional tax reliefs for employee share schemes, we shall have to wait and see.

Lesley Stalker is Head of Tax at business tax specialists, RJP

www.rjp.co.uk