One of the most welcome business taxation measures in the March 2016 Budget is without doubt the Chancellor’s revised changes to Entrepreneurs’ Relief
As you will recall, corporate tax experts were concerned by the original ER changes in last year’s Budget which, although designed to ‘prevent avoidance’, also adversely impacted upon business owners’ exit strategies when selling to family members.
The 2015 changes went far beyond their intended targets and were widely seen as an attack on owners’ rights to pass on their trades to their families.
I was part of the team, representing both the Chartered Institute of Taxation (CIOT) and the Institute of Chartered Accountants in England and Wales (ICAEW), that met to discuss the new rules with HMRC.
Happily, HMRC listened to our concerns and has, in this Budget, amended the new rules to hit only the intended targets. Additionally, the revised rules will be backdated to the time when they were first introduced.
This development is a victory for collaborative working and shows what can be achieved when tax advisers and their counterparts at HMRC come together to discuss difficult business taxation issues. Tax practitioners put in a lot of hard work to present their case, effectively working voluntarily, but the outcome was well worth the effort.
Another positive step for small business owners is the extension of Entrepreneurs’ Relief to external investors – i.e. non-employees of unlisted companies – as long as the investors subscribe for new shares and hold them for at least three years. Making the use of company losses more flexible – probably as from 2017 – and cutting both corporation tax (from 2017) and business rates are also among the welcome measures for small businesses.
A reduction in Capital Gains Tax to 20 per cent is good news for everyone, although unfortunately it will not apply to residential property as the Government wants to encourage investment in trading companies. These CGT cuts may not have the desired effect though, as I’m sure people would rather invest in bricks and mortar if they can, than in unlisted companies which are far riskier.
Less happily, the Budget contains an increase in the tax charge on loans to shareholders and a raft of new anti-avoidance measures which will introduce instability and make life more confusing for the average business owner. They will also result in greater complexity and higher compliance costs for everyone.
Whether HMRC will be able to bring in an additional £12bn through George Osborne’s anti-avoidance plan remains to be seen. His estimates are usually way out and any extra tax collected is often relatively low so the merit of these latest measures is questionable.