Shashi Prashad, Enterprise Tax Director, on a Budget that was packed with good reasons to plan for the future.
I don’t generally hark back to my Scouting days, but when I think about what the Spring Budget means for privately owned businesses, the message that leaps to mind is ‘Be prepared’. While it held few surprises, announcements from earlier Budgets – such as Making Tax Digital, and the Base Erosion and Profit Shifting (BEPS) regime – will mean that businesses need to consider how to practically implement these new requirements. If you prepare now, you’ll help to reduce potential challenges from HMRC, and fully understand your tax profile, which will help in the event you want to sell your business.
The other clear message was that the UK is still very much open for business. With the lowest corporate tax rate in the G7, and a strong tax regime, the UK is committed to demonstrating that even on the verge of Brexit, it’s a great place to base a business. By announcing extra funding for the Devolved Administrations, along with the Northern Powerhouse and Midlands Engine Strategy, the Chancellor also showed he’s committed to distributing prosperity across the UK.
Here’s my summary of the changes affecting privately owned businesses.
Making Tax Digital will start as planned on 1 April 2018 if businesses have profits chargeable to income tax, pay Class 4 National Insurance contributions (NICs) and have turnovers in excess of the VAT threshold. There will be a 12-month delay for unincorporated businesses and landlords under the VAT threshold (£85,000). For businesses subject to corporation tax, the rules will come into effect in April 2020. This gives some businesses just one year to buy and test software (and train employees to use it) so they’re ready to report quarterly. It’s clear that businesses that don’t comply will face penalties and increased scrutiny from HMRC. If you aren’t sure what to do, speak to an advisor.
The BEPS regime aims to make sure companies pay the right taxes in the right jurisdictions, and the UK is leading on implementing its measures. Much of my current work is helping clients of all sizes navigate the impacts on international tax risks. Businesses that have (or plan to have) operations overseas need a structure that’s tax-compliant and fits their commercial needs. Many also need to comply with a specific new rule restricting interest relief on debt, which takes effect from 1 April 2017 and could have a cash tax impact. You’ll need to assess what level of interest is tax-deductible for the business, and report this to HMRC.
New rules on corporate losses also take effect on 1 April 2017. These restrict the use of brought-forward losses, but are more flexible on new losses, so you’ll need to understand the make-up of your losses going forward.
A “hard” Brexit could have implications for privately owned businesses, too, in the form of higher customs duties to and from the EU. We’re working with clients to make sure they’re equipped for the worst-case scenario.
In other and very welcome news, the Chancellor announced a plan to simplify the process for claiming tax relief on research and development (R&D) expenditure. We’ve long known that many privately owned businesses are missing out by not taking up this Government-sponsored incentive, which could result in a cash tax credit. The key is to ask an R&D specialist to look at what you’re spending money on (such as software development) and to tell you if it’s eligible. We’re working with a number of clients on significant R&D claims. Remember you only have a two-year window to make a claim.
Finally, the Chancellor announced a £435 million business rates relief package for small businesses – another sign that he’s listening to feedback.
As expected, the Chancellor announced plans to carry out a formal review of the use of employee benefits and to reduce the tax-free allowance on dividends from £5,000 to £2,00 from 6 April 2018.
If you're business contracts with personal service companies or self-employed individuals, you'll also need to make sure you keep up-to-date with whether employment taxes would be due in these circumstances. This will allow you to stay compliant and help to avoid unexpected liabilities.
As announced last year, the personal allowance will rise to £11,500 this April. The higher rate threshold will rise to £45,000, except for most non-investment income of Scottish taxpayers where the threshold will be £43,000.
Also coming into effect this April is the gradual removal of mortgage interest tax relief for landlords who hold property portfolios privately. Some landlords are considering moving their portfolio to a company, and if you’re considering this option I’d recommend seeking specialist advice that considers the full implications of the transfer, and ideally getting advance clearance from HMRC.
For the last ever Spring Budget, this was fairly uneventful. At the same time, there’s a lot to prepare for if you want to keep on top of tax compliance, particularly if you’re looking to expand overseas. Seeking specialist advice will help to make sure you don’t face unexpected tax issues on your journey.
Shashi is a specialist in corporate tax for privately owned businesses. He helps clients of all sizes – from start-ups to £3.5bn family businesses – understand their tax profiles, considering the position for both the company and the shareholders.
T: +44 (0) 7826 533 500