13 November 2018
With the prolonged uncertainty of Brexit continuing on the horizon and with no sign of clarity any time soon, what a business owner craves the most is certainty so that they can make informed decisions for the current and future benefit of their business and their employees.
Therefore, recent announcements in the Chancellor’s Budget statement on Monday 29 October may have just added to these woes with the following:
1. Increased Annual Investment Allowance (AIA)
AIA provides an immediate tax write off for the cost of qualifying capital expenditure incurred by a business, and therefore can generate significant cash flow savings.
Whilst the increase of the allowance (from £200,000 per accounting period) to £1 million is very welcome news, a sting in the tail is that the increase is currently only going to be temporary, applicable for expenditure incurred between 1 January 2019 and 31 December 2020.
Careful planning of expenditure is therefore going to be required to ensure that the maximum allowance is claimed in accounting periods straddling the introduction and removal of the temporary allowance, so please do remember to speak to your usual contact before incurring significant expenditure.
2. Entrepreneurs’ Relief (ER)
ER is a much loved and valued tax relief for both tax advisers and business owners alike, providing scope for just a 10% tax rate to be payable on the disposal of qualifying shares in your personal company or relevant business assets (the normal rate for such disposals being 20%).
Whilst the headline value of 10% tax remains, there were some potentially fundamental changes announced which appear to require every company to review their share structures now to ensure that there are no surprises on a future disposal.
One change was the well-publicised extension of the qualifying holding period from 12 months to two years (effective for disposals after 6 April 2019) so those planning to sell in the short term may just want to take a breath and check the rules before pressing ahead.
A second and arguably more significant change buried in the detail relates to the question of whether the type and holding of shares still represents a qualifying holding for ER purposes. Draft legislation was released on 7 November with the immediate conclusion put forward by many that those companies with any sort of alphabet share structure or special rights attached to shares are at risk of no longer qualifying for the tax relief.
Taking both of these changes together and with the timeframe for any potential disposal or winding up action sometimes being lengthy, an urgent review of companies with unusual share structures or specific agreements between shareholders is strongly recommended.
To read our recent Entrepreneurs’ Relief blog, click here.
3. Tax Relief for Goodwill
The rules which provide tax relief to a company for purchasing goodwill have been changed several times over the last 15 years with a last fundamental change in 2015 being the removal of any tax relief for goodwill when it is amortised. This step moved the goalposts considerably on the question of whether a purchaser should buy the shares in a company or the trade and assets from a target.
With vendors typically favouring the sale of shares, (not least to try and secure a claim for ER), there was no longer a tax incentive for purchasers to seek to complicate matters by pushing for a trade sale.
Following the Budget however, this problem may be resurfacing. As part of the Budget package, HMRC released a brief consultation document suggesting changes that would allow tax relief to be claimed in certain situations where the target has an identifiable value in its intellectual property.
Watch this space as the new rules are understood to become effective after April 2019.
The above rules are subject to the scrutiny of Parliament and being enacted in Statute, which, given the indeterminate political future, means nothing should be taken for granted.
Nevertheless, at a time when tax advisers may have been expecting a relatively quiet Budget, not least with the spectres of Brexit, Christmas and Making Tax Digital looming, the Chancellor does appear to have imposed more hesitance for business owners who just want to get on with it.
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If you would like to read more tax focused blogs please click here.