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Financial Monitor (April 2008)Capital Gains Tax – Entrepreneurs’ Relief The Chancellor of the Exchequer announced, in his pre-Budget statement last October, that from 6 April 2008 the capital gains tax taper relief would be abolished and, instead, all capital gains in excess of the annual exemption (£9,600 for 2008/09) would be taxed at a flat rate of 18%, irrespective of whether the vendor was a basic rate or a higher rate taxpayer. There was an outcry because the Chancellor’s proposals made no special provision for business assets. With full taper relief, the maximum rate of capital gains tax on qualifying business assets was 10%, so the new 18% flat rate represented an increase of 80%. Eventually the Chancellor relented and announced an ‘Entrepreneurs’ Relief’. This will charge the first £1 million of gains on business assets at 10% instead of 18%. The £1 million ceiling will apply cumulatively to gains on disposals in 2008/09 and future years of assessment. So far, that’s good news, and the even better news is that each individual will be entitled to his or her own £1 million allowance, so a husband-and-wife team, if they arrange their affairs correctly, will pay 10% tax on the first £2 million of gains arising when they sell their business. Assets need to have been owned for 12 months to qualify but certain businesses are excluded such as property investment. The bad news is that ‘business assets’ are defined differently for the new Entrepreneurs’ Relief than for the old Business Asset Taper Relief. The new legislation is complicated, so that any brief summary would be misleading, but many sales that would have qualified for Business Asset Taper Relief will not qualify for the new Entrepreneurs’ Relief. To take three examples:
We would advise all clients with substantial business assets to review their ownership structures in the light of the new legislation, and in the light of their own plans for the future. Some rearrangement now may produce worthwhile tax savings when the business is sold. Capital Allowances New rules for capital allowances, originally announced in last year’s Budget, came into force this month. Most importantly, there is a new ‘Annual Investment Allowance’ (AIA) which will allow traders to claim 100% first-year allowances for most purchases of machinery, equipment and vehicles, to a ceiling of £50,000 a year. As usual, the principal exception is motor cars. The new ‘AIA’ is available for purchases on and after 1 April 2008 for companies and 6 April 2008 for sole traders and partnerships. However, it is essential to note that this does not mean that every trader can immediately purchase £50,000 worth of new equipment that will quality for the 100% allowance. This is because, where the trader’s accounting year spans 1 April or 6 April, the allowance for that year is reduced proportionately. For example, if a company’s accounting date is 30 June, the ceiling on expenditure in the three months 1 April 2008 to 30 June 2008, which will quality for the 100% AIA will be (3/12 x £50,000) = £12,500. It is not necessary to claim the full 100%, for example if you have insufficient profits to cover the allowance. Any balance then carried forward will qualify for writing-down allowances at the new, lower, rate of 20% a year (previously 25%). No instructions? If you have a machine, such as a computer, mobile telephone or DVD player but no instruction manual, try www.instruction-manuals.co.uk. Some are available as free downloads, others can be acquired in hard copy for a fee. Minimum Wage The Government has announced that from 1 October 2008 the minimum wage for those aged over 21 will be £5.73 (currently £5.52) an hour, £4.71 (currently £4.60) for those aged 18 to 21 and £3.53 (currently £3.40) for qualifying 16 and 17 year olds. Sage Payroll From April 2009 Sage will no longer be able to support Sage Payroll Version 10. Sage Cover for this product will therefore only be offered until 5 April 2009. There are discounts available for upgrading to Sage 50 Payroll. Please contact us for assistance as we are able to obtain products from Sage on your behalf. Maternity Leave At present women retain the right to all non-pay benefits for the first 26 weeks of their maternity leave period – for example, a woman will continue to accrue annual holiday entitlement as if she were still working. The retention of these non-pay rights will continue for the second 26 weeks of maternity leave and it was initially intended that this would apply from 6 April 2008. However, it has recently been announced that implementation has been delayed, so that the right to non-pay benefits in respect of the second 26 weeks of maternity leave will apply only when the baby is due on or after 6 October 2008. Fitting Out Expenditure When properties such as pubs, restaurants etc are fitted out, this will sometimes comprise repair expenditure which can obtain 100% tax relief but may be mostly capital expenditure. Some of that will be allowable for capital allowances purposes and others not. When such allowable expenditure is incurred then if this exceeds the Annual Allowance then it will only attract 10% tax relief on a reducing balance basis. In a recent case involving the public house chain, Wetherspoon’s, there was debate over which capital expenditure was eligible for capital allowances. It was held that building work required to enable a piece of plant to function was eligible for allowances, eg. cubicle partitions in a toilet whereas building work as a consequence of the installation of plant, eg. kitchen walls altered to accommodate new cookers did not qualify. Where construction is involved there is always room for debate and it is important to look at the position before the job is complete and before those involved in the project have left the site. Once time has elapsed it will be difficult to establish the correct position so it is important this is considered when the project is ongoing and not left until accounting information is delivered to us after the year end. Site Waste Management Plans Regulations 2008 These new regulations came into force in England on 6 April 2008 and are primarily aimed at reducing the amount of waste within the construction industry. If you are a building contractor and carry out construction works to a value of £300,000 or more you will need to know about these regulations and their implications. We are grateful to Rod Austin of Estate Services On-Line Limited for drawing our attention to a booklet ‘Site Waste – It’s Criminal’ which is a simple guide to site waste management plans and is available at www.netregs.gov.uk If a project is planned before 6 April 2008 and construction work begins before 1 July 2008 the regulations do not apply. Otherwise a Site Waste Management Plan will need to be developed if the construction project is worth more than £300,000. Corporate Manslaughter and Corporate Homicide Act 2007 The Act came into force on 6 April 2008 and enables an organisation to be convicted where a gross failure in the way activities are managed or organised results in a person’s death and also amounts to a gross breach of the duty of care to the deceased. The penalty is an unlimited fine.
Whilst every care has been taken in the preparation of these notes we can accept no responsibility for errors or omissions contained in them or for any loss arising from their use unless we have been consulted professionally prior to any action being taken. UHY Wingfield Slater A member of the UHY Hacker Young Group of independent UK partnerships. A member of UHY, an international association of independent accounting and consulting firms. |
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