Creaseys Spring Update
Creaseys Spring Update
While Brexit continues to dominate the political and business landscape, several developments in the way that businesses and their owners are being taxed might be thought to be flying under the radar.
With the Easter break on the horizon, now seems as good a time as any for a recap of some of these.
With the Prime Minister now having agreed an extension to our departure date with the EU to 31 October, or earlier if she gets agreement to her withdrawal bill earlier, there is still a great deal of uncertainty regarding our departure from the EU. The Prime Minster and her government will now be working hard with parliament over the next weeks and months to try and break the current deadlock.
In the spring statement the chancellor promised a ‘deal dividend’ if MPs can agree a Brexit deal, freeing up funds to boost the economy and end austerity. Whether or not this results in any tax cuts remains to be seen.
He was keen to stress that a no-deal Brexit would cause economic uncertainty, which would no doubt have tax and spending implications.
Making tax digital
Making Tax Digital (MTD) for VAT has now been implemented, with a six month deferral (to 1 October) for more complex businesses i.e. trusts and unincorporated charities, overseas traders, public corporations and businesses with the following VAT profiles: VAT group registration; divisional VAT registration; required to make payments on account; or use the annual accounting scheme.
Following the Spring Statement, MTD for income tax and corporation tax will not be introduced before April 2021 at the earliest. Most of the legislation for MTD for income tax is currently still only in draft. The notice containing the details of how the tax rules will apply won’t be published until the government makes a decision on when MTD for income tax will be introduced. The pilot scheme for income tax is open, and any self-employed businesses and landlords meeting the eligibility criteria with compatible software can join the pilot.
Changes to Entrepreneurs’ relief
HMRC has revised the proposed changes to the Entrepreneur’s relief rules. In addition to the existing requirement to hold ‘5% of share capital’ and ‘5% of voting rights’, shareholders should also be entitled to at least 5% of the proceeds on the disposal of the entire ordinary share capital of the company.
This single rule would replace the previous changes proposed in the chancellor’s autumn statement following representations that the rules were unfair to holders of shares whose terms could vary.
All three tests would still need to be met throughout the qualifying period – this is one year for disposals up to 5 April 2019 and 2 years for disposals after this date. Encouragingly, the current draft legislation suggests that the new ‘5% of proceeds’ test would be satisfied even if the entitlement to 5% only crystalizes on exit due to terms present in the shares throughout the qualifying period.
In more good news, legislation has also been drafted that would entitle shareholders to claim Entrepreneur’s Relief on gains that accrue while meeting the qualifying conditions, even if their holding is subsequently diluted below the 5% thresholds at the time of disposal.
The Annual Investment Allowances (AIA), which provides 100% tax relief on qualifying plant and machinery expenditure, has been temporarily increased from £200,000 to £1 million for a two year period from 1 January 2019. This has a huge cash flow benefit for those businesses investing heavily in plant and machinery.
On a less positive note, the Special Rate Writing Down Allowance (WDA) has been reduced from 8% to 6% per annum from 1 April 2019. The special rate WDA applies mainly to high emission cars and integral features on buildings, however the increase in AIA is expected to outweigh any reduction in tax allowances from this measure.
Electric charge points 100% first year allowance has been extended for four years from 1 April 2019 but, in contrast to this, the 100% first year allowances on energy efficient plant and machinery will be ended in April 2020.
The new Structures and Buildings Allowance (SBA) came into force on 29 October 2018 and provides tax relief at an annual rate of 2% for those businesses investing in the construction of non-residential structures and buildings. This measure helps to address the problems with the capital allowances regime, where no tax relief is available for the cost of buildings used for business purposes.