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?

A recent Eaves and Co project involved helping a client prepare a claim for their Research and Development (R&D) Expenditure. Small and medium companies are able to benefit from a deduction of 200% (2011/12) and 225% (2012/13) of the qualifying expenditure.
The initial stage in the process was determining whether the research and development undertaken qualifies for a claim for a deduction from their taxable profits. In order for the expenditure to qualify, the research and development undertaken must aim to solve a scientific or technological uncertainty and not just find evidence to support previous conclusions. We interviewed the individual who is responsible for R&D and formed a ‘product matrix’ of all the products worked on and why the work qualified as R&D.
Once it had been decided that the client’s research and development qualified for the deduction, Eaves and Co gathered the information required, for example expenditure on gas, water and electricity as well as staff costs and materials specifically relating to the research and development undertaken.
The next step involved determining whether the client would be classed as a large or small/medium company and calculating the tax reduction/saving that they would benefit from. This entailed applying the company in question to the legislation on R&D in areas such as the criteria for small and medium companies and the criteria surrounding the number of employees, and the annual turnover and balance sheet figures.
The final part of the project involved the preparation of the R&D calculations and the supporting paperwork to the claim. This also involved liaising with the company’s accounts department and auditors to ensure that the claim was reported in the correct manner.
On this occasion, Eaves & Co were able to help the client save nearly £60,000 in their R&D claim.