Budget considerations for SME’s
This business briefing highlights the key issues for small and medium-sized enterprises in the 2013 Budget.
Simplification of income tax for small businesses
The government announced changes to the design of the proposed cash basis scheme which will take effect from 6 April 2013. As part of its report into the taxation of small businesses, the Office of Tax Simplification proposed in February 2012 that a cash basis of accounting should be available for businesses with annual turnover below £30,000. The draft legislation to introduce this measure increased this threshold to £77,000 (or £154,000 if the results are linked to a claim for universal credit). The design changes announced in the 2013 Budget include:
• Businesses using the cash basis will continue to do so until their circumstances change so that the cash basis is no longer suitable for them.
• Businesses will not be required to align their accounting with the tax year.
• An adjustment on a “just and reasonable” basis will be made when an individual takes business goods for his own use.
• Use of the simplified flat rate expenses will not be compulsory for cash basis users. (This removes a major flaw in the original proposals and will make it possible for cash basis users to claim capital allowances on cars.)
• Simplifying the legislation.
Corporation tax main rate reduced to 20% from 2015
• The main rate of corporation tax (CT) for non-ring fenced profits will be reduced to 21% for the financial year commencing 1 April 2014 and to 20% for the financial year commencing 1 April 2015.
• The main rate applies to companies and groups whose annual profits exceed £1.5 million. The small profits rate of CT (which applies to companies and groups whose annual profits do not exceed £300,000) will be retained at 20% for the financial year commencing 1 April 2013.
• As a result of the reduction of the main rate of CT to 20%, the small profits rate and the main rate of CT will be merged to create a unified CT main rate from 1 April 2015.
Seed enterprise investment scheme: concession for off-the-shelf companies
• Legislation will be introduced to amend the seed enterprise investment scheme (SEIS) independence requirement. The amendment will have effect for shares issued on or after 6 April 2013.
• The independence requirement is that the issuing company must not be a 51% subsidiary of another company or under the control of another company (or another company together with persons connected with that other company) at any time from the date of its incorporation to the three year anniversary date of the relevant share issue.
• The SEIS independence requirement causes a problem for off-the-shelf companies because it is common for a corporate shareholder to hold the subscriber share, which means, for a period, the off-the-shelf company is controlled by another company. The amendment will ensure that such off-the-shelf companies are not disqualified provided that control exists only during a period where the company has issued only subscriber shares and has not yet begun, or begun preparations for, its trade or business.
Seed enterprise investment scheme: extension to reinvestment relief
• The government has announced an extension to seed enterprise investment scheme (SEIS) reinvestment relief. Currently, SEIS reinvestment relief provides an exemption from capital gains tax (CGT) for gains on disposals of any assets made in 2012-13 if a SEIS qualifying investment is also made in 2012-13.
• Legislation will be introduced to extend the exemption to gains accruing in 2013-14 provided they are re-invested in SEIS qualifying shares in 2013-14 or 2014-15. However, the exempt amount is half the qualifying re-invested amount.
Employee shareholder status
• The 2013 Budget included further details about the proposed new “employee shareholder” employment status. To obtain this status, individuals would give up some employment rights in exchange for CGT exempt shares in their employer.
• The tax provisions relating to employee shareholder shares will take effect on 1 September 2013, along with the legislation implementing the new status.
• The draft legislation to provide a CGT exemption for disposals of employee shareholder shares has been revised to exclude an income tax charge on a buyback of employee shareholder shares which qualify for the CGT exemption, and to strengthen the “material interest” restriction.
• Income tax and National Insurance contributions (NICs) legislation will be amended to deem, for tax and NICs purposes, that an employee shareholder pays £2,000 for employee shareholder shares. This will make the first £2,000 worth of employee shareholder shares free from income tax and NICs.
NICs employment allowance
• From April 2014, all businesses and charities will be entitled to an allowance of £2,000 each year, which will be set off against their employer Class 1 secondary NIC bills. The allowance will be operated as part of the normal payroll process of a business through real-time information.
• The government states that employers will merely need to confirm their eligibility through their regular payroll processes, following which the allowance will be deducted from their employer NICs over the course of the year.
• The government intends to discuss the details of the design and operation of this measure with taxpayers and advisers to make the system as simple and effective as possible.
Tax-free childcare scheme
The government will introduce a new tax-free childcare scheme. Under the scheme, working families will be able to claim 20% of childcare costs for children under 12. Claims will be capped at £1,200 per child each year. The scheme will be available for children under five from autumn 2015, building over time to include children under 12 (and older children with disabilities).
Employment-related beneficial and notional loans
The exemption threshold for the aggregate value of employment-related beneficial and notional loans will be increased from £5,000 to £10,000 from 6 April 2014.
The government will introduce a new tax exemption for health-related benefits paid for by employers (on the recommendations of the new assessment and advisory service) to support an employee’s return to work. The exemption will be capped at £500. The government will consult on the exemption later in 2013.
Red Tape Challenge
In April 2011, the government launched its so-called “Red Tape Challenge”, a wide-ranging project aimed at identifying unnecessary regulations. The 2013 Budget:
• Reports that the Red Tape Challenge has saved businesses over £155 million a year and, by the end of 2013, over 3,000 regulations will have been abolished or simplified.
• Confirms that a second phase of the Red Tape Challenge will launch in summer 2013. Through short, targeted reviews, it will look at the whole regulatory system, namely laws, guidance, compliance and enforcement. Businesses’ views will also be sought on what specific areas should be reviewed.
Measures to encourage employee ownership
• The government will provide £40-50 million annually from tax year 2014-15 to encourage uptake of employee ownership structures for businesses.
• For example, this will fund a new capital gains tax relief on the sale of a controlling interest in a business to an employee ownership structure. This relief is related to the development of an “off the shelf” employee-owned company model by the Department for Business, Innovation and Skills and the Implementation Group on Employee Ownership.
Self-certification for approved share schemes
The 2013 Budget confirmed that the government will proceed with a proposal to replace the current system of HMRC approvals for company share option plans, SAYE option schemes and SIPs with a self certification regime.
EMI options and entrepreneurs’ relief
As announced in the 2012 Budget, CGT entrepreneurs’ relief will be available on disposals of shares acquired on exercise of EMI options (EMI option shares) from 6 April 2013, regardless of whether the option holder holds 5% of the shares in the company (as is usually required). The holding period of an EMI option will count towards the one year holding period required for shares to qualify for entrepreneurs’ relief.