Wednesday’s Autumn Statement got me thinking. What should your business be doing in the short and medium term to obtain the benefit of existing tax incentives which are disappearing? And what is round the corner that you should be planning for?
Corporation tax rate cut from 20% to 19% in April 2017, then to 17% in 2020
It’s maybe too obvious but don’t overlook this in your forecast models. A lower rate of tax is great, however expense deductions are worth more now than in just over three years. Consider whether to accelerate expenditure on medium term projects.
Whilst there is an upside for companies with large deferred tax balances, those with DT assets may suffer a one-off P&L hit when the 17% is enacted.
Use your tax losses
The rules on utilising corporation tax losses are becoming more flexible. For some there will be immediate relief against profits from other sources for post 1 April 2017 losses. For some larger companies there could be a major restriction as brought forward loss relief will be capped.
Review your debt profile!
Corporation tax relief on interest payments will be restricted after 1 April 2017 for some larger companies. International groups will be hit hardest – firstly in their heads; the new rules are complex and difficult to navigate. Secondly, in their pockets; there is a widely held view that this measure is likely to be a major upwards driver of the effective tax rates for global businesses which traditionally debt fund local operations via intra group loans.
Research & Development tax credits
The current system has fairly generous tax relief which acts as a major incentive to innovate for all types of business; small to large.
It was announced that this is under review – it could mean more generous relief for larger corporates but the impact on SMEs is not known. If your business has substantial R&D activities, act now and claim your entitlement and be prepared for a new regime coming into effect over the next few years.
For those in the business of buying (or producing) energy saving products of building energy efficient infrastructure – some incredibly good tax incentives are on offer. This was further enhanced by commitments to offer 100% tax first year allowances on ultra low emission (electric cars) charging points, in addition to existing tax incentives for ultra low emission vehicles (100% FYAs) already available, and a low Benefit in Kind regime for employees provided with such vehicles for private use by their companies.
Business Premises Renovation Allowances (BPRA)
This scheme offers 100% relief on costs of converting disused property in certain (nationwide) postcodes. Many areas in Scotland are covered. The scheme ends in March 2017 and there was no indication by the Chancellor this will be extended.
Incorporate or not?
With company rates being drastically reduced there are some significant tax benefits for many businesses as well as certain protections against commercial risk to consider.
Whilst the upside is the lower CT rate, businesses need to be aware that in some circumstances funds can be locked away for several years. For those businesses reinvesting in capex and building up capital however, this can be highly attractive; with the added tax incentive of achieving a lower (via Entrepreneurs’ Relief) 10% capital gains tax rate on disposal of the business at a later date. A welcome bonus to reward hard efforts of entrepreneurs! And there was no tinkering with Entrepreneurs’ Relief announced in the Autumn Statement; perhaps a positive indication that it’s most likely this relief will be around for quite some time yet.
There will be significant changes to the Partnership tax rules on a number of fronts, particularly in the way profits share is allocated to the partners. This is likely to be another reason many businesses may seek the certainty and in some instances relative simplicity of the corporate tax regime instead. We will know more shortly when the new legislation is finally published.
Share ownership incentives
Put simply, these could be on the way out. They were in flavour with the previous Chancellor but appear to be out of fashion with the new Conservative regime. For those considering implementing an Enterprise Management Incentives (EMI) share scheme it might be worth progressing with this sooner rather than later, or you may find it will disappear at some point soon.
Review your employee benefits
The tax impact of alternative to cash salary tax efficient arrangements is changing. Whilst the Government do like pensions and electric cars, gym memberships and mobile phone salary sacrifice options will be gone over the next year or so.
There have been major changes to PAYE Settlement Agreements (simplified in some cases) and to the tax rules on termination payments which have continued to cause large scale confusion over the years. HMRC expect employers to get their employer tax compliance absolutely spot on; and in my experience they deal harshly with those who overlook their obligations and get it wrong.
Prepare for “Making Tax Digital”
The announcement has now been delayed to January 2017 despite several Government promises. This is likely to have a massive impact on all businesses, not only in software development costs, but in business disruption; particularly if as expected a quarterly reporting regime is introduced in 2018 to 2020. Watch this space!
If you want to discuss any of the points raised in this blog please get in touch with me here, or:
0141 886 6644
The information in this blog should not be regarded as financial advice. This is based on our understanding in November 2016. Laws and tax rules may change in the future.