UK private companies need a continued period of stability, enabling them to focus on running and growing their businesses, rather than trying to navigate increasingly complex legislation, says Blick Rothenberg.
With the Chancellor Philip Hammond set to announce his Autumn Budget this week, Genevieve Moore, head of corporate tax at Blick Rothenberg, said, “With Brexit in the background, businesses of all sizes are facing a period of uncertainty and challenge, and it is up to the UK Government to calm the waters. This should start now with a reassuring and simple budget."
Genevieve works with Andrew Sanford who leads a group of specialists from Blick Rothenberg who have been looking at what the Chancellor could, should and shouldn’t do to encourage entrepreneurship and support private companies and Owner Managed Businesses (“OMB”), and they have their say:
Genevieve Moore, head of corporare tax:
Simon Rothenberg, business group manager:
- The cost of employing staff is usually the biggest expense for all private companies and, in recent years the addition of the apprenticeship levy, auto-enrolment to pensions and the current rate of employers national insurance means the cost of employing staff, on top of the salary cost, is immense. Whilst there are certain reliefs, exemptions and thresholds available to off-set the increasing costs for some smaller businesses, these tend to focus on the wage bill rather than on the actual size or profitability. The Chancellor should introduce broader exemptions, which do not just focus on the size of the wage bill or number of employees, as these potentially punish businesses that employ a large number of staff. Thresholds or reliefs that also consider turnover and/or profits would be welcomed by the largest employers.
- The raft of changes to pensions over the last decade has left the owners and managers of UK private companies bemused, where it seems saving for retirement is being punished rather than encouraged and supported. In addition, the number of current rules is confusing and could lead to inadvertent tax charges. To simplify matters, the Government could introduce a flat rate of tax relief on pension contributions and remove the current £40k per annum limit (or £10k for those earning £210k a year or more).
- The generous tax reliefs provided by the Enterprise Investment Scheme (EIS) have contributed enormously to make a risk investment feel less risky, which has enhanced the opportunities for businesses to raise finance from investors to help grow the business. However, EIS arrangements are somewhat complex; adding a huge burden of compliance to businesses and in some cases preventing these businesses from applying for EIS status in the first place due to the increased administration costs. The EIS reliefs should be preserved but a relaxation in some of the criteria for qualifying businesses would be welcomed. For example, that the business needs to remain qualifying at least until the EIS funds have been deployed in the business, rather than for three years. This should help ensure that we don’t end up with business progression being prevented whilst a business ’waits out’ its 3-year EIS period.
- Entrepreneurs Relief (ER) is an excellent relief to encourage entrepreneurship, but the £10m lifetime cap may prevent serial entrepreneurs from pursuing new ideas within the UK due to the expected tax rate they would face on a future disposal once the lifetime cap is removed. A ‘per business’ entrepreneurs’ relief cap, rather than a lifetime limit, could encourage serial entrepreneurs to stay in the UK and start new businesses even after their first venture is successfully sold.
Ravi Basra, coporate tax manager:
- Given the uncertainty surrounding Brexit, the Chancellor should aim to minimise any taxation changes affecting private companies - this will give certainty and restore some trust in the tax system at a time when it is most needed.
- For many years tax simplification has been discussed. For private companies tax administration is a significant burden. HMRC should now look at whether for smaller private companies the accounts should simply be used as a basis for calculating corporation tax and straightforward transitional rules could be introduced.
- Private companies which use contractors will be impacted by any extension to the IR35 changes introduced last year with a significantly increased compliance burden and associated costs. The Chancellor should consider carefully if the rules can be amended to release businesses which are innocently using contractors from the increased administration.
- Private companies may struggle to understand and use the funds available through the apprenticeship levy but suffer the increased cost of paying into the scheme. A review and reform of the levy to allow easier access to funds for such companies, or an increase at the threshold at which it becomes payable would aid the government’s objective to increase the use of apprenticeships, whilst removing the burden from some private companies.
Andrew Sanford, partner & head of private company services:
- The Chancellor shouldn’t make any changes to the current level of Annual Investment Allowance (“AIA”) of £200,000 per annum, which promotes capital expenditure by private companies, as a 100% deduction is available for qualifying capital spend incurred. Whilst the AIA level has reduced since its peak of £500,000, the current permanent level of AIA is still considered attractive by private companies and should be protected for future periods.
- There has been a significant increase in the number of Research & Development (“R&D”) Tax Relief claims made by private companies over recent years. The R&D regime is considered an invaluable relief for private companies, as it currently allows an enhanced deduction of 130% and tax credits worth up to 14.5% for qualifying R&D spend incurred in a period. Any increase in the enhanced deduction and tax credits would not only be welcome but would also clearly demonstrate the UK Government’s commitment to innovation, technology and UK private companies.
Esther Wood, partner:
- In a time of economic uncertainty, the last thing private company owners want is unnecessary tinkering of the tax code.
- Owners of family businesses want to know how indirect tax regimes will change post Brexit. Any clarity in the budget would be welcome.
- The effect of the hike in Business Rates in April 2017 hit private companies hard. A respite by way of a shift from calculation by means of the lower Consumer Price Index, rather than the Retail Price Index would be a welcome change to private companies.
- Private companies will benefit from the reduction in Corporation Tax to 17% from 1 April 2020 and even further if the planned reduction to 15% in goes ahead, albeit this may increase their market competition as more businesses remain or commence trade in the UK markets.
- Simplification in the accounting for import VAT would reduce the administrative burden on private companies, both on the accounting side, and the time spent dealing with HMRC investigations in to anomalies which often result in minimal amounts of underpaid VAT.
- Restricting EIS relief would be detrimental to private companies, as it has been an invaluable source of investment for high-risk start- up businesses and boosted the economy.
For more information, please contact Genevieve Moore
, Simon Rothenberg
, Ravi Basra
, Andrew Sanford
or Esther Wood