TT212: Autumn Statement 2014

Last week the Chancellor stood up to deliver the Autumn Statement but it felt more like a Budget. There were a number of announcements for pensioners, businesses and home buyers.

I will focus on measures (tax and some non-tax) for owner managed businesses.

Incorporating your sole trade/partnership business

There are a number of tax and commercial reasons for incorporating your business.

When you incorporate a business you are deemed to have disposed of the assets of the business to the company (which in many cases includes goodwill). One of the reliefs used to reduce the chargeable gain on incorporation was Entrepreneur’s Relief (“ER”). ER reduces the rate chargeable on qualifying disposals to 10%.

For incorporations on or after 3 December 2014, ER will not be available on the goodwill transferred to a close company (broadly, a company controlled by five or fewer shareholders or any number of participator directors) if the ‘seller’ is related to the company (which will usually be the case). This means the gain on the goodwill may be liable to capital gains tax at either 18% and/or 28%.

It was also possible for close companies to claim a tax deduction for the amortisation of ‘’post April 2002’’ goodwill. However this will now not be possible for goodwill acquired from a related individual or partnership business on or after 3 December 2014.

Business Rates

One of the biggest costs for small businesses is the business rates charged by local authorities.

Small business rate relief applies to businesses that have one property or have a property with a rateable value of less than £12,000. The Government have announced that this relief will be doubled for a further year from 1 April 2015.

For the smallest (micro) businesses in the local community, the ‘high street discount’ for shops, pubs, cafes and restaurants will go up from £1,000 to £1,500, from April 2015 to March 2016.

The Government will also continue to cap the annual increase in business rates at 2% from April 2015 to March 2016 – this will benefit all businesses paying business rates.

Employing apprentices

To encourage businesses to employ more young apprentices under the age of 25, from April 2016 employer national insurance contributions (“NICs”) up to the upper earnings (UEL) limit for apprentices will be abolished.

This means it will be cheaper to employ young people, as employers will not have to pay NICs from April 2016 for all but the highest earning apprentices.

Research & Development (“R & D”)

SMEs that carry out qualifying R & D work can for tax purposes claim an additional 125% deduction for certain qualifying expenditure. This percentage will increase to 130% from 1 April 2015.

There will also be an advance assurance scheme introduced for small businesses making their first R & D claim. This should provide some comfort and certainty for first time R & D claimants.

Enterprise Investment Scheme (“EIS”)

Many companies raise finance by allowing investors to subscribe for shares that qualify as EIS shares.

One of the tax benefits of EIS shares is that you can ‘freeze’ gains made on chargeable assets provided the proceeds are reinvested by way of EIS share subscriptions.

EIS has been made slightly more attractive for investors. The Government will allow gains which are eligible for ER, but which are instead deferred into investments which qualify for the EIS to remain eligible for ER when the gain is realised. This will benefit qualifying gains on disposals that would be eligible for ER but are deferred into EIS investments on or after 3 December 2014.

British Business Bank

To help small businesses access credit, the government will expand the British Business Bank to encourage peer to peer lending.
The British Business Bank does not provide funding directly to smaller businesses but works in conjunction with private sector partners to enable small businesses to access more finance.

New funding for the Enterprise Finance Guarantee (“EFG’”) scheme will enable British Business Bank to guarantee up to £500m of new lending to smaller businesses in 2015-16, while the Enterprise Capital Funds (“ECFs”) programme is being expanded and extended with £400m over three years.

The ECFs programme is a venture capital programme designed to address a gap in smaller businesses’ ability to access early stage growth finance.

Exporters

The government announced a new package to help small and medium-sized UK businesses to take their first steps into exporting.

National Minimum Wage

The Government will increase funding in 2015-16 to improve enforcement of the National Minimum Wage.

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