Taper: no reprieve
28 Mar 08
The Chancellor did not go back on his plans to abolish 10 per cent CGT taper relief for business assets
The Chancellor did not go back on his plans to abolish 10 per cent capital gains tax taper relief for business assets.
The new CGT rate of 18 per cent applies from 6 April. As outlined earlier this year, “entrepreneur’s relief” means the first £1m of gains on the disposal of trading business will be taxed at 10 per cent. This is a lifetime limit.
The increased tax rate of 21 per cent for small businesses, announced in last year’s Budget, comes into effect this fiscal year.
The unpopular measures on “income shifting” have been delayed for another year. The rules, introduced after HMRC’s defeat in the Arctic Systems case, are aimed at preventing husband-and-wife businesses from allocating dividends and profits so as to reduce the overall tax paid. ICAS hopes the delay will mean an opportunity for reconsideration.
Neil Whyte, tax partner with accountants PKF, said: “Had the draft legislation come into force next month as planned, many family businesses would have had to keep considerably more detailed records to prove that they were not shifting business income between family members to save tax. It had all the makings of a red-tape nightmare.”
Small businesses face tougher rules on research and development tax credits, with a cap on qualifying expenditure for any single R&D project of E7.7m (£5.8m). Companies whose accounts are not prepared on a going concern basis will be ineligible. Russell Hills, KPMG head of tax in Scotland said: “For some, this could be the difference between just surviving and finally going under.”
The Chancellor announced a modest increase in the funds available under the small firms loan guarantee scheme, a fund of £12.5m to help female entrepreneurs, and a change in public sector procurement policy to help smaller businesses bid for contracts.
There were more than 20 measures to simplify the tax system, mainly for small firms.
Tony Cohen, head of UK entrepreneurial business at Deloitte, said: “The Budget contains some positive measures for entrepreneurs in the UK although they fall well short of what was taken away in the Pre-Budget Report through the abolition of taper relief and the changes in the treatment of non-domiciles.”