Budget 2013 had some treats for small businesses but the raft of new anti-avoidance provisions will not help the simplification of the tax system. Businesses will welcome the measures in connection to employment taxes and how these can be used to incentivise employees. The proposed reduction of the corporation tax rate to 20% will at last give UK companies one tax rate – and the complexities of the associated companies rules will disappear.
Entrepreneurs have been given another chance to make tax efficient seed investments; however, the cap on entrepreneurs’ relief has been kept at £10 million and there is no removal of the 5% shareholding requirement.
The general anti-abuse rule (GAAR) is still on track to come into effect from royal assent and together with today’s announcements of very targeted anti-avoidance the future shape of acceptable tax planning is far from clear.
Our detailed Budget analysis can be downloaded here.
The key announcements are set out below:
Seed Enterprise Investment Scheme – the exemption for reinvesting gains into SEIS shares will extend to disposals made in 2013/14 which are reinvested in 2013/14 and/or 2014/15. However relief will be restricted to 50% of the amount reinvested. The quantum of the extension is disappointing given the individual SEIS limit of £100,000 per year and the fact that a company can only raise £150,000 in total under SEIS.
IHT and liabilities – changes will be made to the rules on the deductibility of liabilities for inheritance tax purposes. This is likely to impact particularly on individuals who have outstanding loans from EBTs and other sources as part of tax planning arrangements.
IHT and non-domiciles – as previously announced, the inheritance tax exempt amount for transfers to non-domiciled spouses or civil partners will be increased and aligned to the nil rate band from 6 April 2013. Also from 6 April 2013, non-UK domiciliaries who inherit from a UK domiciled spouse or civil partner will be able to elect to be treated as UK domiciled for inheritance tax.
Employee shareholder status – as previously announced, gains made on disposals of up to £50,000 worth of ‘employee shareholder’ shares will be exempt from CGT. The announcement of a £2,000 income tax and national insurance free amount is welcome news and will make the relief more appealing. The introduction of this new ‘employee shareholder’ status will be delayed until 1 September 2013.
Employee loans – there will be an increase in the taxable cheap loan threshold for employees from £5,000 to £10,000 with effect from 6 April 2014.
Loans to participators – new anti-avoidance rules have been introduced with immediate effect to counter bed and breakfasting of loans to avoid a section 455 charge. Also, the loan to participator rules are being amended to deal with the avoidance of a tax charge by lending the money to an intermediary.
Reduction in corporation tax rate from 2015 to 20% – this will put all companies on a level playing field and remove all the complexities of associated companies.
Corporation tax and deferral of payment of exit charges – companies wishing to migrate and become resident in another member state of the EEA will be able to defer the payment of exit charges that will arise on assets. This is in line with a recent European Court of Justice ruling.
New disclosure facilities – Jersey and Guernsey have agreed to automatically exchange information with the UK and as a result HMRC will offer a new disclosure facility. Other UK protected jurisdictions are expected to follow suit.