Small businesses get a Budget boost, but a few stings remain


17-03-2016

Lizzie Hill, entrepreneurial business tax partner at Deloitte, comments: “Overall, this is a good Budget for entrepreneurial businesses, with reductions in capital gains tax (CGT) and corporation tax cuts, a boost to the small business rates relief and the extension of Entrepreneurs Relief to external investors in private, trading businesses. However, there are a few stings, particularly around the Employee Shareholder Status (ESS) scheme and increased dividend tax rates.”

 

CGT

“The lifetime allowance for Entrepreneur’s relief remains at £10m for qualifying owners selling their trading businesses. Those not qualifying for relief or with gains in excess of the limit will see CGT cut from 28% to 20% and (10% for basic rate taxpayers) from 6 April 2016.”

Entrepreneur’s  relief

“Investors that subscribe for new shares in a business from 17 March 2016 should qualify for 10% CGT. The shares must be held for a period of three years, starting from 6 April 2016 and must be newly issued shares in trading companies. Entrepreneurs that cannot raise funds under the current EIS or SEIS regimes may benefit by this measure, as will individual investors wishing to invest in excess of the limits in qualifying businesses.”

Small  business rates relief

“Increasing the small business rates relief is one of the largest Budget cuts and is anticipated to cost the Exchequer approximately £1.5bn in 2017/18, whilst benefiting hundreds of thousands of businesses. This will come as a huge benefit to small, entrepreneurial businesses.”

Abolishing Class 2 National Insurance Contributions

“Another measure to be welcomed is abolishing Class 2 National Insurance Contributions. This will see self-employed entrepreneurs, including those in trading partnerships, save £145.60 each per annum. This change will cost the Exchequer £355 million in 2018/19, but simplifies the current system.

Corporation tax cuts and dividend tax rate rise

“Profitable entrepreneurial businesses will welcome the cut in corporation tax to 17% in 2020.  However, owner managed businesses that pay significant dividends to shareholders will still be paying more tax in total due to the effective 7.5% increase in dividend tax rates. These kick in from 6 April 2016 (7.5% / 32.5% / 38.1% for basic, higher and additional rate taxpayers) and was announced in the Summer 2015 Budget. This is expected to raise over £2.5 billion in 2016-17.  The Chancellor also announced that the “loan to participator” tax charge which applies where money is lent out to shareholders of certain companies will be increased from 25% to 32.5%.  This aligns with the new dividend tax rate and is intended to raise a further £15m in 2016/17.” 

Employee  Shareholder Shares (ESS)

“There is a further sting in the tail for entrepreneurs hoping to use ESS to incentivise employees. Introduced in the last Parliament, it requires employees to give up some of their employment rights in return for shares in their employer, attracting a 0% capital gains tax on disposal. Individuals who acquire shares as employee shareholders after midnight on Budget day will be subject to a lifetime cap of £100,000 on gains benefiting from 0% CGT.”

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The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

Deloitte LLP