Autumn Statement 2014 - what does it mean for small businesses?
What did 2014’s Autumn Statement contain for small business owners, not only in the Chancellor’s speech but also in the fully detailed report published by the Treasury? Our Chief Accountant, Emily Coltman FCA, investigates.
The Chancellor, George Osborne, promised to accept “nearly all” of the recommendations made by the Office for Tax Simplification (OTS). These include:
Employee benefits and expenses
Crucially, the employee benefits and expenses regime, which currently is a big drain on the time of small business owners and their accountants, is to be reformed.
From April 2015, employers will not have to report on form P11D any “trivial benefits” worth under £50. Currently, if an employer feels a benefit is trivial, they have to ask HMRC to agree to exempt them from reporting it. The £50 threshold will be a statutory exemption (i.e. it will be laid down in law, rather than established by common practice).
From April 2016, certain reimbursed expenses will not have to be reported on form P11D, and it will be possible to report certain benefits through the payroll, rather than on form P11D.
Also from April 2016, the current £8,500 salary limit for reporting expenses and benefits on form P11D for non-directors will be abolished. These reporting exemptions will now only be available to carers and ministers of religion.
This reform of the employee benefits system comes as very welcome news and it will be interesting to see which reimbursed expenses will not have to be reported.
Construction Industry Scheme
The Autumn Statement also promised simplification to the Construction Industry Scheme. More information is expected on this in the near future.
Other tax simplifications
A further 51 out of a total of 58 recommendations by the OTS will be accepted or given more consideration.
Travel and subsistence tax relief is under review, and hopefully this will lead to simplification, since this is an area where small business owners and their accountants have to resort to reviewing legal cases to identify where tax relief can be claimed.
Additional tax reliefs
The Autumn Statement contained several potential tax savings for small businesses. These include:
Increase of Research & Development (R&D) tax credit
The R&D tax credit will increase from 225% to 230% as from 1st April 2015, and the application process for R&D tax credit is to be “streamlined”. However, the costs of materials incorporated in products which are sold will no longer be eligible for R&D tax relief as from that date.
Extension of Small Business Rate Relief
The availability of the Small Business Rate Relief, which gives small businesses that are not based at home 100% relief from business rates on their premises, will be extended to April 2016.
Also, the current £1,000 discount on business rates for shops, pubs, cafes and restaurants whose premises have a rateable value of £50,000 or less, will increase to £1,500 in 2015-16.
A full review of business rates has been announced too.
Employer’s NI changes
The Employment Allowance of £2,000 will be extended to cover carers and support workers from April 2015.
Employers will not have to pay Employer’s NI in respect of the wages they pay to apprentices aged under 25. This is restricted to earnings less than the Upper Earnings Limit (which is £805 per week at the moment). This measure will come into effect in April 2016.
Higher rate tax threshold raised as well as Personal Allowance
From April 2015, the Personal Allowance will rise to £10,600, and the higher rate tax threshold will also be increased in line with inflation. This means that sole traders, partnerships and LLPs which make profit in the region of the higher rate tax threshold will save some tax.
It remains to be seen whether this saving will be offset by future changes to the National Insurance thresholds.
From January 2015, merchants will have to make funds available to small businesses from debit and credit card payments “much more quickly”. The proposed timescales have yet to be quantified.
What about the not-so-good news?
While this year’s Autumn Statement was generally very positive for small businesses, there are some points which could - and will - increase tax bills.
Acquisition of goodwill
At the moment, when a sole trader incorporates (i.e. turns his/her business into a limited company), the new limited company can buy the goodwill in the existing business. Not only can this prove a very tax-efficient way to take money out of the company, the company can often claim tax relief on the amortisation of the goodwill. This Autumn Statement announced restriction of Corporation Tax relief on acquisition from a “related individual or partnership”. No further detail was given, but I would expect this to mean that the amortisation of the goodwill will no longer be allowable for Corporation Tax.
Consultation on umbrella companies
The government has stated its intention of consulting around the rules for umbrella companies (i.e. companies that employ multiple contractors on separate contracts). In his speech, the Chancellor said that this was to ensure workers were not deprived of employment rights, but in the detailed document, the reason given was to restrict the claiming of tax relief on home to work travel.
What this will mean in practice remains to be seen.
And what was not mentioned?
There was no mention in either the speech or detailed report of IR35 or “disguised employment”. It would seem that this hot potato has been dropped for now.
I look forward to seeing how the 51 further recommendations from the OTS will be implemented. While changes such as the extensions to R&D tax credit and Small Business Rate Relief are welcome, they will not help every small business in the UK. It is my firm belief that radical simplification of the tax system is needed in order to make the UK a truly competitive place to do business.
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