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Budget: Private business taxes

A budget for the next generation of businesses and savers

Susannah SimpsonThis was a Budget for the next generation and for a new generation of UK business – that has to be one of the key takeaways from the Chancellor’s statement with its plethora of surprise tax announcements. It was one of the most exciting days for tax advisers in years.

Cutting the rate of Corporation Tax to 17% from April 2020 was a windfall and headline-grabber. However, as always, the devil is in the detail and we need to examine the impact on larger companies of restrictions on use of losses – if companies aren’t careful this could end up as a large unexpected cash outflow from accelerated tax liabilities where losses from historic trading have built up and been relied upon for years.

The other pleasant surprise was in the cuts to Capital Gains Tax to 20% for higher rate taxpayer and 10% for others, which will be welcomed by those looking to release or withdraw capital from their business, particularly for those where their existing entrepreneurs’ relief lifetime limit is exhausted or not available.

Add to this a new secondary form of entrepreneurs’ relief where non-employee investors in businesses can also secure the 10% tax rate under entrepreneurs relief on gains from their business investments and the package begins to look very friendly for those investing in businesses for the longer (3 year +) term.

Where it gets really interesting is when you consider that the lifeblood of Scotland, perhaps proportionately more so than the rest of the UK, is the privately owned high-growth entrepreneurial businesses and not larger PLCs. Anything which attracts further investment into these areas has to be good news north of the border.

BudgetpwcThe only fly in that ointment for employees is that the massive benefits of employees investing in their own businesses under the Employee Shareholder Status (ESS) arrangement have been significantly limited as of today.

Employee remuneration and reward is important for all businesses who know they need to engage and reward staff to ultimately grow. ESS shares had offered a real incentive for employees to become stakeholders in private businesses in the form of zero capital gains tax on ultimate exit. However, a limit of £100,000 of tax free gains now applies so that the tax benefits are limited to £20,000 – still attractive but not as much as in the past.

Small and micro businesses have more to be happy about. There is tax relief on trading and property related income for micro-entrepreneurs – the first £1,000 of income is exempt from tax. And all those 39 year olds with cash to spare will be rushing to benefit from the new under-40s Lifetime ISA badged as a £1,000 giveaway from the Government for every £4,000 invested.

Although limited by age and the investment ceiling, this offers a simple route to retirement savings which the younger generation might jump at and when added to the increase in personal allowance to £11,500 and the raising of the higher rate threshold begins to look quite rosy for those not yet in middle age.

It remains to be seen how the personal income tax thresholds will change in Scotland next year – the landscape may ultimately be very different for young Scottish entrepreneurs.

And there were boosts for our growing Scottish digital economy too. The Capital Gains Tax and Corporation Tax cuts will be welcomed but the clampdown on VAT-avoiding online dealers will give cheers to those selling online and hopefully level the playing field for the SMEs developing digitally.

Susie Simpson is a private business partner at PwC in Scotland

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