In the midst of the excitement around the World Cup, you could be forgiven for missing the publication of Government’s draft Finance Bill for 2018-2019. However, getting up to speed with its proposals may help UK businesses to boost growth and stay on the right side of anti-avoidance laws.
1 – Extending availability of Entrepreneurs’ Relief
Business owners who have built up a company and are considering selling-up should be aware of proposed changes to Entrepreneurs’ Relief, which allows those meeting its criteria to pay a lower amount of Capital Gains Tax (CGT) when selling all or part of their business.
Rather than paying CGT at the usual rate of 20 per cent (for higher-rate taxpayers) when selling their business, those who qualify for this relief can reduce this amount down to 10 per cent, subject to a lifetime limit of £10 million for gains.
Eligibility for Entrepreneurs’ Relief requires individuals to own a minimum of five per cent of a company’s share capital for 12 months prior to its sale. As such, business owners with a shareholding around this amount aiming to bring in new investors currently need to consider the risk of diluting their shareholding, which could increase their tax liability.
The Government’s latest proposal in this area helps to avoid penalising original shareholders when seeking external investment by allowing entrepreneurs to crystallise capital gains while they still qualify for Entrepreneurs’ Relief. As this measure would also enable them to postpone making the resulting tax payments until the point of selling the business, they can continue to take advantage of the beneficial CGT treatment whilst also growing their company.
2 – Whatever happened to EIS?
The Enterprise Incentive Scheme (EIS) Knowledge Intensive Fund Structure, which was consulted on in the spring, is another area relevant to growing UK businesses. While missing from the new draft Bill, there is a strong possibility that this measure will reappear in the Autumn Budget, making it important for business owners to have on their radar.
It provides the incentive for individuals to invest more ‘patient capital’ in knowledge-intensive businesses, such as those developing intellectual property, in return for improved tax benefits. While investors taking up EIS relief are only currently required to retain the shares for three years to realise the full tax benefits of their investment, the consultation considered how investors could be persuaded to provide the longer term ‘patient’ funds needed to develop IP, so business owners should be sure to look out for updates over the coming months.
3 – Offshore Affairs
Senior Manager Trusts and Estates
Whereas the assessment time limit for offshore income, gains and Inheritance Tax is currently four to six years, so long as the behaviour is not deliberate, the Government’s draft Finance Bill proposes extending this to 12 years. As well as signifying a particular warning to non-doms to ensure their offshore affairs are in order, this measure aims to assist HMRC in the complex task of investigating overseas transactions for all taxpayers.
4 – MTD: points-based penalties system
Other upcoming changes important for growth businesses to be aware of are those relating to digital methods of accounting and rules for ‘off-payroll working’. With HMRC’s Making Tax Digital programme due to be introduced for VAT-registered businesses next year, the new Finance Bill also outlines proposals for a new points-based penalties system for missing tax return submission deadlines.
Rather than aiming to catch businesses out for one-off mistakes, the system aims to catch regular non-compliers who accrue points for repeat misdemeanours. Similar to the penalties system for a driving licence, this flexibility will be particularly beneficial for growing businesses, which often undergo significant change as they adapt to new procedures and may be at greater risk of making mistakes.
5 – One to watch: Payroll for Subcontractors?
It is also important to keep up to date with the outcome of the Government’s ongoing consultation on ‘Off-Payroll Working in the Private Sector’. This is likely to see businesses gaining responsibility for deciding whether PAYE needs to be operated when employing contractors through intermediaries.
While the new Finance Bill may not have brought any watershed changes for UK SMEs, considering its proposals could well help businesses to boost their growth prospects whilst staying on the right side of the law.