Business braced for tougher tax cuts
Many businesses are still reeling from the announcements in the Summer Budget which saw the tabling of a National Living Wage and the abolition of tax credits on dividends and increased dividend rates from April 2016.
What can business owners expect from this Autumn Statement? Will the Treasury redirect its firepower or could the family business continue to find itself in the firing line?
If the press leaks are anything to go by, the Autumn Statement could herald tougher tax cuts for businesses.
The much adored Entrepreneurs’ Relief (ER), which can see a business owner sell up and incur as low as a 10% capital gains tax rate, is coming under heavy scrutiny both from the general press and the National Audit Office (NAO).
This is a relief introduced in 2008 to promote entrepreneurialism which in some ways is now seen as a victim of its own success. The NAO argues that costs have spiralled out of control (£2.9 billion in 2013/14) and the Summer Budget saw the beginning of a curtailment for certain businesses to specific parts of the relief. Might we see a reduction in the lifetime limit of £10 million qualifying gains, together with further restrictions in its availability?
Within the contractor space, specifically Personal Service Companies (PSCs), articles in the press suggest that the tax reporting obligation could fall on businesses which contract with PSCs.
The reporting obligation would take the form of the business having to start deducting PAYE after one month from the PSC if certain criteria were met. Not only could this see businesses cease to use PSC’s due to the associated tax risk, and hence people falling into unemployment, but also an additional tax and reporting burden being levied on businesses to ensure they deal with such contractors correctly.
The Summer Budget saw an Inheritance Tax (IHT) giveaway for the more mature homeowner in the form of an additional IHT free nil rate band when properties of a certain value are left to the next generation through the Will.
This was welcomed by most in society where house price rises over recent decades have brought more and more people within the scope of IHT. With the books to balance, could the Autumn Statement see the stripping away of some of the older, business-related IHT reliefs, the most notable of these being business property relief (BPR)?
BPR works to relieve 100% of the value of a qualifying trading business from IHT, thereby saving up to 40% on the value of the business. This relief since its introduction has seen the successful passing on of the family business in lifetime and on death to the next generation. Without it, businesses are likely to require to be sold in order to fund the tax bill arising upon death of the owner.
Over recent days the loss of this relief has been alluded to in the press but, given the government’s commitment to ‘backing business,’ it is hoped a relief that costs the Treasury a lot less than other reliefs will remain unscathed.
Finally, it is also being muted that HMRC may seek to align the national insurance (NI) rates for employed versus self-employed taxpayers. Currently the former pays 12% Class 1 NI on earnings between £8,060 and £42,380 and 2% on earnings over £815 per week. Whereas the self-employed pay Class 4 NI at a rate of 9% between £8,060 and £42,385 and 2% thereafter. The alignment of these NI rates would further increase the tax burden falling on business at a time when the economic outlook remains uncertain.
Alex Docherty is Tax Director in the Edinburgh Office of Johnston Carmichael