The Budget for Small Businesses.

This week’s Budget announcement contained several pieces of good news for smaller businesses, including increased flexibility in setting off corporation tax losses, the extension of entrepreneur’s relief and full relief from business rates for small businesses.

Here are the headlines from the Chancellor’s 2016 spring budget speech for SMEs:

Changes to corporation tax.

• Corporation tax will be reduced to 17% from 1 April 2020. This will be a further reduction from the 19% tax rate taking effect from 1 April 2017.
• From 1 April 2017, a company can carry forward losses to use against profits made from a different activity to the trade in which the losses were made. This is a change in the rules preventing a loss being set against a different trade, and may be particularly helpful for small businesses which carry on more than one trading activity.
• In a similar move to increase flexibility in using losses, corporation tax losses will be capable of being set off against the profits of other group companies.
• The corporation tax charge of 25% on directors’ loans will be increased to 32.5% from 1 April 2017.  This applies to loans that are outstanding more than 9 months after the end of the accounting year.

Expansion of entrepreneurs’ relief.

• The 10% tax rate for qualifying disposals of shares will be extended to include investors subscribing for shares after 16 March 2016 and who hold them for at least 3 years after 6 April 2016. There will be no qualifying requirement for the investor to be an employee or officer of the company, and there is no minimum number of shares that the investor needs to hold in order to qualify for the relief.
• Entrepreneur’s relief can also now be claimed where business-related goodwill is passed to a company that is connected to the seller, where the seller ends up with a minority share of the company of less than 5%. This is backdated to 3 December 2014.

Full relief from business rates.

• Small business with a rateable value of £12,000 will get a 100% relief, which will become permanent. There will also be a tapered relief for businesses with a rateable value between £12,000 and £15,000.

Encouragement for ‘green’ cars.

• Businesses purchasing new cars with carbon dioxide emissions below 75g/km can claim a 100% first-year allowance, which has been extended until April 2021. The emissions threshold will fall to 50g/km from April 2018 however.

Registering for VAT.

• From 1st April 2016 businesses have to register for VAT when their turnover for 12 consecutive months is £83,000.

Changes in communicating with HMRC.

• In a move towards modernising the tax system, small businesses will be required to submit quarterly updates to a digital tax account from 2018.
• Not only should digital communication with HMRC be simpler, but also tax bills will become ‘pay as you go’, helping businesses to manage their cash flow.
• The Government also floated ideas such as a dedicated phone line and online forum for start-ups and small businesses, in order to provide them with additional guidance on filing and paying taxes.

Disclaimer 
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.