Putting Rocket Boosters on the Back of Enterprise
17 March 2016
It’s always great to have a Budget which emphasises the importance of the role of SMEs and entrepreneurs in job creation and innovation in the UK and this Budget set out the Government’s commitment to the sector through a series of new measures.
Firstly on the headline rates of tax, corporation tax will be cut to 17% in 2020 to make the UK one of the most competitive nations in the world and there are reforms to widen the ability to use corporate tax losses carried forward, but with an absolute restriction. Capital Gains Tax will be reduced to 10% for basic rate taxpayers and 20% for high rate taxpayers and we have the introduction of the new National Living Wage in April.
Of particular interest to fast growth companies is the extension of the 10% Entrepreneur’s Relief rate of CGT to investors in unlisted companies. In order to qualify, the investment must be in shares in an unlisted company which have been issued after 17 march 2016 and held for 3 years before disposal. This will hopefully open up more potential funding, alongside the existing Enterprise Investment Scheme and Seed Enterprise Investment Scheme reliefs.
The government also introduced welcome business rates reform, and has permanently doubled the Small Business Rate Relief from 50% to 100% and increased the thresholds. The Budget report states that that this will take 600,000 small firms out of business rates completely.
The relief for Micro Entrepreneurs - those making a small amount of trading, services or rental income, often facilitated by new digital platforms - is welcome recognition that the world of enterprise is changing
There are also some changes for larger multi-national businesses which fast growth companies should be aware of, including the new restrictions to interest deductibility and royalty payments.
For fast growth companies who have used the Employee Shareholder Status to reward employees with equity, there will be an individual lifetime limit of £100,000 on gains eligible for CGT exemption
In non-tax measures, the government also sets out steps to support the digital economy through the establishment of a new Broadband Investment Fund, delivery of a 5G strategy and investment of £10m in a new hub for data science. Continued devolution of powers may also give local hubs the ability to influence their economic development in a way that is appropriate for the region.
Fast growth companies continually tell us that simplicity and clarity in the tax system would make a huge difference. The Business Tax Roadmap is a step in the right direction through dedicated HMRC phone lines, online forums and targeted support to high growth businesses. It will interesting to see how the Government responds over the coming months to the report by the Office of Tax Simplification on small business taxation which contains some even more radical ideas.