2014 Autumn Statement

Whilst as expected, only a few new tax announcements were made in Wednesday’s Autumn Statement, there were still one or two unexpected changes. There was the already widely publicised Stamp Duty Land Tax changes which will benefit many people when they move house, and the more “typical” adjustments such as the increase in the higher rate tax threshold, but we have focussed on the changes that you may not yet have had time to consider in full and which we feel are likely to be of most practical relevance. Note that these are based on the initial announcements and draft legislation where appropriate, and so where are subject to any potential changes that might be made before the legislation becomes final.

Entrepreneurs Relief on incorporation

With immediate effect Entrepreneurs Relief will not be available to reduce Capital Gains Tax on disposals of the reputation and customer relationships associated with a business (the ‘goodwill’) to a company to which the seller is related. This change is made alongside a measure to restrict Corporation Tax deductions when goodwill is acquired from a related party on incorporation.

RS Comment:

This rather surprising announcement has immediate effect and means that one of the tax benefits from incorporating your business has gone, such that the individual’s gain on the transfer will now be subject to the normal 18% or 28% rates rather than 10% and in addition, the company will not be able to claim corporation tax relief on the amortisation of the goodwill acquired as a result. However, there are still ongoing annual income tax savings to be had from incorporating for certain businesses. Also the 18%/28% might still be palatable depending on the specific circumstances and there are alternative methods of incorporation that could be considered to deliver other tax efficiencies.

Entrepreneurs Relief on deferred gains

Some better news regarding Entrepreneurs Relief. The Government will allow gains which are eligible for the relief, but which are instead deferred into investments which qualify for the Enterprise Investment Scheme (EIS) or Social Investment Tax Relief (SITR), to remain eligible when the eventual gain is realised. This applies for gains deferred on or after 3 December 2014.

RS Comment:

Whilst this will result in a cashflow benefit in terms of deferring the tax and also preserves the 10% tax rate, bear in mind that keeping all the cash from the sale now might still be more favourable for many people, even though they would have to pay 10% tax now.

Employers’ National Insurance changes

In addition to the removal of Employers’ National Insurance from under 21s from April 2015, from April 2016 employers will also not have to pay it in respect of the wages they pay to apprentices aged under 25 earning up to the upper earnings limit (which, as a guide, will be £815 a week for 2015/16).

RS Comment:

Whilst this may not immediately affect all businesses, for those who do use apprentices it should be a welcome saving off the bottom line, and should hopefully also be an effective incentive for other businesses to try the apprentice scheme.

2015/16 personal allowance

Whilst the small increase in personal allowance to £10,600 for 2015/16 was not big news in itself, it is just worth pointing out that this means that the optimal salary for the director of a one-man company will be £10,600 in 2015/16 assuming you can claim the £2,000 NIC employment allowance.

Research and development

From 1 April 2015 the R&D tax credit multiplier for SMEs will increase from 225% to 230% and the “above the line” credit for companies in the “large company scheme” from 10% to 11%.

RS Comment:

Whilst not a significant change this nonetheless demonstrates the pattern in recent years of encouraging R&D activity, and adds to what is already quite a generous tax break for qualifying companies.

Diverted Profits Tax

A new tax is to be introduced to counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK. It will be applied using a rate of 25% from 1 April 2015.

RS Comment:

We await to see the draft Finance Bill clauses before we can understand whether this is likely to have an impact on smaller companies but which are nevertheless members of larger worldwide groups. We would expect it to apply to relatively large groups only, but cannot be certain at this stage.