Lesley Stalker, head of tax at Robert James Partnership, looks at the positive and negative elements of the chancellor's 2012 Autumn Statement for small business owners.
Increase to Annual Investment Allowance (AIA)
Top of the announcements for SMEs was the 10-fold increase to AIA. As of January 2013, the amount business owners will be able to write off as tax deductible capital expenditure in the year of purchase will increase from £25,000 to £250,000. This is a massive boost and far more significant than the previous government’s attempt at encouraging investment amongst business owners. In April 2010, the relief was £100,000, which was also generous, but not large enough to enable a lot of companies to write off all their capital purchases in the first year. This new limit however will achieve that in a single hit and we expect a lot of businesses will take advantage and upgrade their infrastructure.
Apart from being an opportunity for businesses to tax effectively revamp their IT systems, purchase new equipment or invest in new facilities, this is also a clever move by the government to support suppliers and manufacturers. We hear about business owners stalling decision-making because of the continuing economic uncertainty but this policy will mean they will quite literally get to have their cake and eat it, because they will be able to pursue capital investment with a significantly reduced level of financial exposure. Hopefully it will also mean that the software companies and advanced manufacturing specialists the government wants to sustain will benefit from a much steadier order pipeline next year.
Increase to personal allowances
This may not seem much in the grand scheme of things but many smaller company owners opt to pay themselves a very small salary and will receive dividends only based on company performance, especially in the early days of trading. So, actually, this development means that from April 2013, they can receive total income of around £44,000 with no personal tax liabilities.
Reduction in the rate of corporation tax
Therate of corporation tax for large companies is set to reduce to 21% in April 2014. Although this doesn’t help smaller companies, it does mean that the UK will have the lowest rate of corporation tax in Western Europe, which can only be good for investment.
Increase to the 40% tax rate threshold
Starting from 2014 and continuing into 2015, the threshold for paying the 40% rate of income tax is to rise by 1% in 2014 and 2015 from £41,450 to £41,865 and then £42,285.
Insignificant increases to Capital Gains Tax (CGT) and Inheritance Tax (IHT) exemptions
Starting from 2014, the CGT annual exemption allowance will increase by 1% to £11,100. Coupled with this there is a low increase to the nil rate band for IHT, which also increases by 1% to £329,000 from 2015. Is it really worth it we ask ourselves?
Announcements to keep an eye on:
Alternative Investment Market (AIM) shares held within ISAs
It will soon become possible to own AIM shares within stocks and shares ISAs, in a bid by the government to encourage investment in SMEs by making it tax efficient. In addition, the amount which can be invested within ISAs tax free each year will be increasing.
Increased support for exporters
To help support industry and technology in which the UK has a significant advantage such as aerospace and supply chains of advanced manufacturing as well as exporters trading overseas, the government is increasing its funding of UK Trade and Investment by 25% a year.
Pledge to crack down on tax avoiders
Whilst this is welcomed by those who are paying their fair share of tax, the question is whether HMRC will have the resources to tackle it in the way the government promises. In the statement, further reductions in public spending were announced, so what we are seeing here is the promise of spending cuts alongside increased work for HMRC. It will be interesting to see how these two issues are reconciled.
The chancellor also promised the introduction of a new general anti-abuse rule, which hopefully we will learn more about very soon. He also confirmed that after signing what he described as "the largest tax evasion settlement in British history", money would start flowing from Swiss bank accounts back into the UK for the first time.
Additional tax relief opportunities
Little detail was provided during the statement but there is to be additional tax relief available for companies that offer employee share schemes. In addition, there are new initiatives due to be unveiled which will enable companies to make the most of low cost, renewable energies.
Although there is always more that can be done, this wasn’t a bad statement for small business owners who can at least look forward to increased tax reliefs. What are you going to buy with your enhanced Annual Investment Allowance?