WINNERS AND LOSERS – Dan Booth of Lifecycle Comments on the Tax Announcements in the Budget

1st November 2018

WINNERS AND LOSERS – Dan Booth of Lifecycle comments on this week’s tax announcements in the Budget

Anti-avoidance tax legislation

IR35 is the UK’s anti-avoidance tax legislation which was put in place to tax ‘disguised’ employment at a similar rate to employment. Disguised employment refers to when people receive payments from clients through an intermediary, such as their own limited company, and the relationship with their client is such that if they had been paid directly they would be employees of the client. The Budget announced that the same changes will now be applied to private sector organisations, but for now will only apply to medium and large businesses and be introduced wider from April 2020.

Dan comments: “Whilst the extension into the private sector of IR35 is delayed for lots of smaller businesses, this is another slap in the face for people working in this area. I guess it was not unexpected. The Government has been trying to clamp down on this for a while. The obvious impact is that people could be treated as employees without any of the benefits of being one.”

Personal allowance and jobs

Phillip Hammond announced that the rate at which people will start paying income tax will rise from £11,800 to £12,500 in April next year. This is interesting as the changes came in a year earlier than anticipated. Equally the higher rate income tax threshold will rise from £46,350 to £50,000 in the same month next year. The current government have also pledged to increase start-up loans from 2021 and reduce small business contributions to the Apprenticeship Levy from 10% to 5%.

Dan comments: “This is a very welcome change and 12 months ahead of schedule so good news. There are some encouraging noises here about better supporting apprenticeships which could look to seriously challenge university entry routes into jobs. There are fewer barriers to involvement for companies. It is positive feedback on apprenticeship schemes in general and for young people who know what path they want to follow and are happy to work and study, earning while learning.”

Business rates

This was one of the big announcements of the Budget where the Chancellor made a commitment – indeed a vow – to reduce business rates for companies with a rateable value of £51,000 or less by a third over two years.

Dan comments: “You have got to welcome this again but I am not sure that the upper limit of £51K is a high enough threshold to make a real difference. It gives the concession only limited reach. There are much bigger businesses on the high street that need the help, but it does represent a much needed shot in the arm for the beleaguered retail sector.  It remains to be seen whether taxing the big digital players will make their businesses any less of a threat to the high street – I guess not. But at least they will be contributing to the Chancellor’s pot for any future high street giveaways. It won’t level the playing field but will champion choice and might keep more in business.”

Entrepreneurs relief

After much speculation on this Phillip Hammond announced this Budget would not be re-allocating funds elsewhere but that they will extend the minimum qualifying period to two years. In doing so he recognises the importance of a dynamic enterprising economy when trying to provide sustainable public services.

Dan comments: “Business owners I have spoken to are relieved about this. The extension of the holding period will affect some tax planning but the reduced rate of tax and lifetime limit still remains the most attractive tax mitigation tools for entrepreneurs.”

HMRC as preferred creditor in insolvency cases

The Budget has seen the return of HMRC as a preferred creditor in insolvency cases last seen in 2002, when under the Enterprise Act, HMRC removed its right as a preferential creditor in the pecking order and ranked itself alongside unsecured creditors.

This meant taxes paid by employees and customers were not always provided to HMRC in circumstances when the business temporarily holding them goes into insolvency before passing them on to the government. Instead, they often go towards paying off the company’s debts to other creditors.

So from 6 April 2020, when a business enters insolvency, more of the taxes paid in good faith by its employees and customers, and temporarily held in trust by the business, will go to fund public services rather than being distributed to other creditors.

Dan comments: “This is a complete about turn from 16 years ago and pushes the ordinary unsecured creditor down the pecking order.  It’s a move likely to increase the cost of borrowing and the amounts lent. In fact those potential lenders will be looking for more fixed charge security which could make matters worse for a firm struggling to survive. When it’s already under maximum pressure there is additional risk for all stakeholders. The Chancellor will see it a good news for the Exchequer, but only for the short term in my view. It could also make HMRC more aggressive in policing and enforcing its preferred creditor status. Most businesses and entrepreneurs I have spoken says it is far from encouraging in a post-Brexit environment – whatever that will bring – and was not a clever move.”

About the Lifecycle network

Lifecycle is a unique network for accountants – provided by the Leonard Curtis Business Solutions Group (LCBSG).

It provides member accountants with a comprehensive range of specialist services – and the expert support required – to improve their client offering at every stage of a business’ lifecycle. From company formation to cessation and all stages in between.

Lifecycle is free to join and also offers members many additional benefits. These include eligibility for a highly competitive Professional Indemnity insurance scheme, a regular programme of free training and education and discounts on products and services relevant to their business and clients’ needs.

Services offered by Lifecycle include: Company secretarial and formation; equity finance for SMEs; debt advisory for SMEs; personal debt advice; corporate restructuring, insolvency and cessation; debt finance for SMEs; cashflow maximisation; property solutions and legal services.

 

 

 

 

03300 242 3333