The Treasury has invited comments for the 2015 Budget.  I set out below some personal thoughts on a Budget for Small Business.  There are plenty of other ideas too – but please Chancellor make the rules clear and the policies consistent over time, so that business owners can plan for the future.  Tinker Not!

  1. Make the income tax rate on small traders/1890 Partnership Act partnerships limited to 20% on trading income.  [Do not include large 20+ member partnerships nor LLP’s.  Why should Mr Patel’s corner shop be subject to a 40% marginal rate charge on trading income above ~£40k when his rivals at Tesco, Asda, etc., only pay 20% maximum rate on £millions of profit?
  1. Abolish (or severely curtail) the connected parties rule for incentives such as EIS.  The current rules are complex and arbitrary and basically mean the only individuals able to claim the reliefs are those who know nothing about the business.  This encourages excess cost and mis-selling.  If a friend or family member were encouraged to invest via a tax incentive, I believe that would provide far more intelligent seed corn funds and encourage small business.
  1. Similarly, free up personal pension funds to invest in small business.  By all means encourage diversity, but do not think restricting investments to the ‘Trust me, I’m a Big City Institution’ circle is going to improve the UK economy swiftly.  At present people are prohibited from investing part of their pension fund in a growing, local small business that they believe in and trust, and instead have to hand it over to a faceless Fund Manager (where he generates neither emotion).  This cuts down on capital available to growing entrepreneurial businesses because all pension savings are focussed on large City Institutions.
  1. Split retail and investment banking, and in exchange for Government guarantees to the former, insist on x% of lending going to small business, decided at local level.
  1. Abolish rates and have a radical review of property taxes and local Government funding.  I do not know what the answer is, but the split state of the nation between London/South East and the rest, does not bode well for everyone.

I dare say preparing a National Budget is a complex affair, requiring detailed planning, financial modelling and intellectual thought.  I strongly approve of the idea of taking sounding from our profession who deal with the consequences of tax policy on a day to day basis.  However, it is a bit scary to think that anyone seriously expects radical policy ideas raised now are actually going to feature in a June 2015 Budget!  Perhaps next time?

I am a Tax Practitioner.  As a Chartered Accountant and former Inspector of Taxes, I have always been taught [and sought] to act ethically.

Unfortunately, I fear HMRC is at grave risk of becoming dysfunctional.  Too many cuts in expertise, perhaps?  Too many silly projects, instead of performing good service.  Generally a political problem, rather than the good Civil Servants trying to keep the ship afloat?  Questions!

From my experience, I understand that certain people have tried to disclose undeclared income to HMRC, but have then been ignored.  Understandably, this makes them a little reticent in sending a reminder!

I have just had a telephone call from a pensioner [not a client] who is [from information provided] not due to pay tax, but is having tax deducted at source from her widow’s pension.  A decent HMRC would provide her with a real person to talk matters through.  However, such local Help Desks have been abolished.  This seems to be on the grounds that you can get such assistance “online”.  There are [many] people who have never been online, and do not own computers.

Please do not suggest a telephone ‘Help Line’ is remotely equivalent – even if you have the patience to wait the extraordinary length of time for the telephone to be answered.

You may speculate where such saving in Government costs may fall, in terms of rich and poor.  In this particular case it is likely to fall upon the pensioner who cannot understand how to get her [deserved] repayment.

In our great democracy such matters may affect your vote?

Surely, a sensible and coherent Tax Policy should be a great vote winner?

With such an opportunity, then, you may speculate as to why Ed Balls decided to attack giving cash to humble workers, rather than focussing on the more complex area of multinational business [where the money is]?

Using straightforward cash?  We all realise, [surely] electronic monetary transfers would be far better than cash?  Electronic transfers would involve Banks that would impose charges on the small business concerned.  If the business was in overdraft, the Banks may take away control of day to day funds and then, at their whim may close the branch in the [it does not matter because it is out in the sticks] small town where the humble worker may reside?  Transfers to banks that may be computer hacked for millions?  Run “Trust Me I am a Banker” past your marketing department as a slogan?

The Westminster People know the Bankers, so obviously they understand how trustworthy they are.

The argument seems to be give your money to the big banks and supermarkets, because they are obviously less corrupt than the nice woman who cleans your windows and has done since she inherited the business from her father, when she decided to look after him after his stroke?

Tax is a social good.  It should be paid according to the law.  Please do not bring morality into it, because if we thought that way no one would wish to pay it, because in the diverse economy of modern society there will surely be something everyone could claim a moral objection to funding.

If paying tax is a moral duty, then presumably any radicalised Muslims have a good argument for tax exemption, because they would object to bombing the Islamic State?

As to Evil Tax Planning, I would suggest that anyone who is not planning on [at least] smoking 20 cigarettes and also drinking a bottle of wine this evening is guilty of planning to avoid, VAT, tobacco and alcohol duty.  I trust you will wake up appropriately ashamed of yourselves!

The suggested content of the Finance Bill 2013 has now been published.  If it obtains Royal Assent then the new rules it contains will form part of UK tax legislation from 6 April 2013.  As ever, it is a long document and briefly here are some of the highlights:-

  •  The proposed statutory residency test is included in the Finance Bill 2013.  It has been changed from the draft published under the last consultation and it is therefore worth reviewing these new rules in more detail if they apply to you or your clients.
  • Income tax reliefs are to be limited to £50,000 or 25% of total income
  • Shares acquired through an EMI share option scheme could qualify for Entrepreneurs relief after 1 year from the date of the option’s grant (as opposed to the current rules where the shares had to be owned for a year before a sale).  The 5% shareholding requirement is also removed from shares acquired under EMI options.
  • Pension payments made by employers will only be an exempt benefit to an employee, not the family of an employee.

As ever there are a number of changes.  If you would like advice on any of these please contact Eaves and Co for further details on how the Finance Bill 2013 could affect you.

Top Tax Tips for Owner Managed Businesses
5. Pensions
Pensions are a highly effective and tax efficient manner in which to remunerate employees. Not only are contributions deductible for the employer but they are a tax free benefit for the employee.
A major consideration for the employer is the fact that no Employers’ NI is payable on the contributions.  This makes the cost to an employer lower and may also help to meet their commitments under the imminent NEST (National Employment Savings Trust) rules.
Care should be taken where both the employee and employer make pension contributions because the employer contributions are taken into account in determining whether the annual allowance has been reached.  The annual allowance is the maximum amount of pension contributions that receive tax relief and is set at £50,000 for 2011/12 (subject to carry forward of unused allowances in the previous 3 years).

From 6 April 2011, the rules on receiving relief for pension contributions have been changed.  The new rules restrict the maximum annual allowance to £50,000 from £255,000 (subject to the limit of 100% of relevant earnings).

Whilst this may appear to be a significant reduction, for the majority of taxpayers it actually represents an increase from what could be contributed on the most tax efficient basis, due to the complex rules in place over the past couple of years.

An additional welcome change is that unused allowances from the three previous tax years will be available for “carry forward” to the year in question. 

Unused allowances in 2008/09, 2009/10 and 2010/11 will be available to carry forward into 2011/12 but on the assumption that the annual allowance was £50,000 in those tax years.  This will mean that those paying less than £50,000  in these years will have additional allowance to carry forward from prior years to 2011/12.

We recommend specific advice is taken as to the maximum relievable pension contribution level for 2011/12.

With the end of the tax year 2010/11 fast approaching there are several opportunities that will be gone come 2011/12.
Here are some of these opportunities:

  • Pension Contributions: As of 6 April 2011 the annual allowance for pension contributions will be reduced to £50,000 as opposed to the £255,000 in 2010/11. If you are considering making lum sump contributions to a scheme then it is important to take advice as soon as possible because other factors may affect your planning
  • Trusts & Estates: There is still a possibility for Capital Gains taxable on the settlor to be charged at the old rate of old rate of 18% even if the gains are realised after the 23 June 2010.
  • National Insurance Contributions: With an increase of 1% due in 2011/12, a bonus paid before the end of the tax year will make an effective saving, compared to the bonus being later.

If you require any help with your tax planning, please contact Eaves & Co at either our Leeds or Southport offices for an initial consultation.