Not quite tax cuts for all this Christmas, but the Chancellor introduced a raft of measures which may well stimulate small business in even more ways than originally intended. We have summarised briefly the key announcements and included links to more detailed analysis.Close speedread
All businesses will be permitted a three year carry back of trade losses incurred in the next 12 months for companies (2008/09 for individuals), up to £50,000 in total for losses carried back more than 12 months. This ensures that a business does not have to cease trading to qualify for what otherwise would only be possible under the terminal loss relief rules. See Legal update, Pre-Budget Report 2008: Extension of trading loss carry-back for business (www.practicallaw.com/7-383-9988).
Owner-managers and their spouses trading through companies will be delighted to learn that the income shifting proposals postponed in March 2008 are now deferred. Although the issue will remain under review, the previous proposals were deemed by all to be unworkable. See Legal update, Pre-Budget Report 2008: Income shifting: nothing in Finance Bill 2009 (www.practicallaw.com/7-383-9988).
Originally the small company rate of corporation tax was set to rise by another 1% in 2009 to 22%, this was intended to bridge the tax gap created by business owners who were remunerating themselves in dividends and so avoiding National Insurance contributions (NICs) (www.practicallaw.com/8-201-8297). This policy appears to have lost footing in the financial crisis and the increase in the small companies’ corporation tax rate has been deferred also. See Legal update, Pre-Budget Report 2008: Corporation tax: small companies’ rates (www.practicallaw.com/7-383-9988).
Employers, employees and the self-employed face a 0.5% increase in NICs from 2011. Small companies and their owners will not suffer this tax increase if remunerating continues by way of dividend. See Legal update, Pre-Budget Report 2008: Tax rates and allowances (www.practicallaw.com/7-383-9988).
A new 45% rate of income tax will apply to earners on £150,000 or more per year from 2011 and a new higher dividend tax rate will extend to 37.5%. The 32.5% and 10% dividend rates remain for taxpayers in the lower bands. See Legal update, Pre-Budget Report 2008: Tax rates and allowances (www.practicallaw.com/7-383-9988).
The measure which affects business of all sizes is the announcement of a cut in the standard rate of VAT to 15%. The rate change, which applies to goods and services supplied for thirteen months from 1 December 2008, creates extra work for all businesses in their administrative and accounting functions, apart from presenting the IT industry with the immediate challenge in modifying software to create fixes for point of sales and accounting software. Millions of businesses will be struggling with their tills on 1 December. See Legal update, Pre-Budget Report 2008: Temporary reduction to the standard rate of VAT (www.practicallaw.com/7-383-9988).
An increase in the threshold of the bespoke retail VAT scheme for businesses with a turnover of more than £100 million and a simplification of the VAT flat rate scheme requirements for small business with a turnover of less than £150,000 are both welcomed. See Legal update, Pre-Budget Report 2008: Retail schemes: threshold for bespoke schemes increased (www.practicallaw.com/7-383-9988) and Legal update, Pre-Budget Report 2008: Flat rate scheme: simplification (www.practicallaw.com/7-383-9988).
The expensive car restriction for capital allowances and for leased cars is to be gradually replaced by CO2 emissions based rules from April 2009, subject to transitional arrangements. Motorcycles are to be excluded from the definition of cars and will not be subject to these rules. See Legal update, Pre-Budget Report 2008: Tax relief for business expenditure on cars (www.practicallaw.com/7-383-9988).
A bonus for motorcyclists is that HMRC has confirmed that expenditure incurred on motorcycles on or after 1 or 6 April 2009 will qualify for the annual investment allowance (www.practicallaw.com/2-380-0714).
When a creditor company writes off a trade debt owed by a connected debtor, the creditor is denied a tax deduction for the write off and the debtor may be taxed on the amount released. From 1 April 2009, the write-off will no longer be charged to tax. A debtor company only achieves a deduction for interest payable to a connected creditor that is outside the loan relationships rules on a paid basis, rather than on the accruals basis that normally applies. Options for change are being considered following earlier consultation on this point. See Legal update, Pre-Budget Report 2008: Debt: changes to connected parties rules (www.practicallaw.com/7-383-9988).
Taxpayers who are suffering cash flow problems due to the current financial crisis will have the facility to spread their tax debts without incurring additional late payment surcharges. See Legal update, Pre-Budget Report 2008: Late payment of tax debts (www.practicallaw.com/7-383-9988).
Empty business property with a rateable value of less than £15,000 will be exempt from business rates in 2009/10. See Legal update, 2008 Pre-Budget Report - implications for property: Business rates (www.practicallaw.com/5-384-1845).
Government estimates that there are some 4.6 million SMEs in the UK, which account for nearly half of the UK’s GDP. Access to cash is vital and to date the Small Firms Loan Guarantee Scheme’s requirements have been so stringent that most businesses do not qualify. Creditworthy businesses may benefit from a new Small Business Finance Scheme and a separate new guarantee facility for exporters. See 2008 Pre-Budget Report: Box 4.1.
Small business owners and advisers have been particularly vocal on the topic of taxpayers’ rights, and business groups have welcomed the news that the charter will be embedded in primary legislation, after all. See Legal update, Pre-Budget Report 2008: Taxpayers' charter (www.practicallaw.com/7-383-9988).
The problem of false self-employment in the construction industry has gone largely unchecked by HMRC according to a report published in May 2008. "The Evasion Economy - false self-employment in the construction industry" was commissioned by UCATT (the Union of Construction, Allied Trades and Technicians). The government says that it continues to be concerned about false self-employment and will work with the industry to tackle the issue. Apart from disadvantaging vulnerable workers, who are denied employment rights, the practice saves employers National Insurance as well as Construction Industry Training Board levy fees. See 2008 Pre-Budget Report: paragraph 5.105.
Following the consultation earlier this year (see Legal update, Consultation on avoidance involving tax relief claims for travel expenses of temporary and contract workers (www.practicallaw.com/7-382-7117)), the government has decided to leave the current rules unchanged and will instead focus on ensuring that the current regime is properly applied. If compliance does not improve, the government may return to this issue at a later stage. See 2008 Pre-Budget Report: paragraph 5.104.