The Autumn Statement was full of small tweaks to existing tax reliefs. There was a welcome change regarding the calculation of Stamp Duty Land Tax on residential property acquisitions and changes to hit the taxation of multinationals and banks.
We have approached the Autumn Statement from a different angle by highlighting some important changes for owner managed businesses and entrepreneurs which were hidden in the detail……
Restricting Entrepreneurs’ Relief (‘ER’) on incorporation
Businesses that operate as sole traders or partnerships have long been able to maximise their tax savings on incorporation by selling their business to a limited company and claiming ER, 10% rate of tax on the profit made. The resulting loan balance could be withdrawn in future years without incurring any further tax, giving a saving of up to 35% on standard rates of income tax.
As of today, the Government will prevent individuals from claiming ER on disposals of goodwill when they transfer their business to a related close company. This will not prevent businesses from incorporating, this has always been possible tax free, but it will remove the added benefit that could be achieved when ER was available.
No tax relief for goodwill amortisation on incorporation
Following on from the above, as of today, it will also no longer be possible for the limited company to claim corporation tax relief on the amortisation of the goodwill it acquires as part of the incorporation. Previously tax relief for the amortisation could be claimed provided that the sole trade or partnership trade commenced post 2002.
Entrepreneurs relief – EIS investments
It has been disadvantageous to defer gains which attracted ER under the Enterprise Investment Scheme ‘EIS’ as ER was generally not available when the gain was ultimately realised. From today gains that are deferred under EIS, will benefit from ER making EIS much more attractive to all investors.
R&D Tax Credits – Advance Assurance
The rate of the enhanced tax relief for R&D expenditure incurred by small and medium businesses will increase from 225% to 230%, from 1 April 2015. An advance assurance scheme for small businesses making their first claim to R&D tax credits will be introduced along with new guidance. The Government will launch a consultation in January 2015 on the issues faced by smaller businesses when claiming R&D tax credits.
We will keep you updated as more detail is released…