Autumn Budget 2018: Headlines for SMEs
Many had anticipated a ‘quiet budget’ with not too many changes ahead of Brexit and the ‘Great Economic Unknown’ which awaits.
In fact, Phil Hammond put on a lively performance with a speech so full of jokes and puns that it almost felt like an afternoon at the Hammersmith Apollo. There was more emphasis on potholes than loopholes and huge hilarity at a new business rates ‘relief’ for public lavatories (said to be for the ‘convenience’ of local government bodies)!
Humour aside, the Budget was, as is now typical, heavy on announcements and light on detail. From an SME point of view the big headlines came on entrepreneurs’ relief (‘ER’). Some of these were already announced, in particular some welcome new rules providing for ER to be retained where a shareholder’s holding is diluted below 5% as a result of further capital injections into the company. In those circumstances, it used to be just ‘tough’ for the shareholders, but from 6 April 2019 elections can be made to treat the event as a disposal of the shares (to bank the 10% rate) and, if desired to defer the gain until a sale of the shares.
Less helpful was the announcement of two new and one amended test for ER. The amended test will see the required holding period extended from 1 year to 2 years for disposal of shares from 6 April next year. The two new tests, which will apply from Budget Day require that in addition to holding 5% of the ordinary share capital carrying 5% of the voting rights, shares must also carry rights to 5% of distributable profits and 5% of the assets available on a winding up. Effectively this will put a stop to a form of ER planning where shareholders are given a special class of shares carrying 5% of the votes but which have less than 5% of the economic interest – an arrangement put into place in many instances where it was intended to allow smaller shareholders to benefit from ER. Any companies or shareholders with such special classes of shares (or any shares with less than full proportionate rights) should now review their ER position.
Other positive points of interest to SMEs include:-
- A temporary (2 year) increase in the Annual Investment Allowance to £1m from January 2019
- A new 2% straight line capital allowance for expenditure on structures and buildings. The ‘SBA’ will be available for costs incurred after 29 October 2108
- A reduction of the co-investment percentage on the apprenticeship levy to 5%.
Less helpful, the government is pushing ahead with its change of rules for taxing contractors where it continues to perceive large scale tax avoidance. The previous rules, known as ‘IR35’ made the contractor’s personal service company liable for PAYE taxes if the relationship was deemed to be truly one of employment . The new rules (already operating in the public sector) shift the burden to the client company. The new rules will be deferred until 2020 (a welcome relief) and will not immediately apply to small companies, but this is an area on which clients should renew their advice as soon as possible.
If the above gives rise to any queries please don’t hesitate to contact Elizabeth Middleton, tax Partner at Cripps or your usual Cripps adviser.