Don’t expect any tax favours in the Spring Budget
1 Mar 10
Entrepreneurs and small-medium sized enterprises (SMEs) are unlikely to find any respite in the Spring Budget, with proposed changes likely to increase the tax burden
However, a few proactive steps could lessen the potential impact.
Unincorporated businesses could, where commercially viable, maximise 2009/2010 taxable income, assessable to a top rate of 40 per cent income tax rather than the proposed 50 per cent rate in 2010/2011, including extending accounting periods (subject to crystallising any overlap relief).
Future commercial returns could be structured as capital receipts assessable to capital gains tax (CGT) at 18 per cent, rather than income, and certain limited liability partnership (LLP) structures may offer flexibility, leading to a more tax-efficient holding structure. Taking bonuses as share awards under a corporate structure may also offer tax savings.
Much-rumoured CGT rises may, however, concern entrepreneurs more. With a clear disparity between CGT at 18 per cent (or 10 per cent on the first £1 million of gains qualifying for Entrepreneur’s Relief) and the new top rate of income tax, it seems likely that any government will seek to increase this. Some entrepreneurs may therefore opt to sell their business before the 2010 Budget to secure the 18 per cent rate.
Tax savings could be achieved by accelerating capital expenditure to 2009/2010 to qualify for 40 per cent temporary enhanced first-year allowances on plant and equipment. Businesses should also maximise relief available on qualifying R&D projects.
Finally for companies, it may be advantageous to take remuneration as dividends rather than bonuses.
Various company law and interacting tax factors may impact on this, but the potential tax and cash flow benefits of dividends compared to bonuses, prior to 6 April 2010, is likely to be significant.