Smart strategies for the future

Now the Budget has been and gone and we've picked the key points out, you're probably working out what affects you. On a surface level it's easy to jump on the tax issues as we were all expecting tax to be the government's route back towards solvency. However, the worst DIDN'T happen and business owners let their bated breath go with a big sigh of relief.

The question is how will the shape of business over the next year or more change?

There are a few hidden tripwires that need to be taken into account.

Capital Gains Tax

This was an area that business people were concerned about as it seemed likely that there would be a hike. However, there wasn't, instead the annual exemption was frozen at £12,300 for the next 5 years. This means that if you are selling shares worth - for instance - £15K, and have no other capital gains, you will only pay CGT on £2.7K. However, as prices generally rise, this means that as the value of your shares increase, the amount that becomes taxable also increases.

Inheritance Tax

Contrary to most people's beliefs, this is not something you should forget about until you're nearing retirement age. As the nil rate band is frozen at £325K for another 5 years - that means that the threshold will not have changed for 17 years, while property values have increased steadily. That means that the value of most people's home alone is likely to put their estate over this threshold. The value of your estate above this threshold is potentially subject to 40% Inheritance Tax.

The sooner you start thinking about your estate the better. Inheritance Tax is one of the easiest taxes to manage - providing you plan ahead. It's wise to get your estate valued and get some recommendations about the best way to manage it sooner rather than later.

Corporation Tax

This is the obvious one for most business owners - and, as expected, it will go up to 25% from April 2023 for companies that have profits of more than £250k. Rather than wait until the last minute, it's worth starting to put money aside to ensure that it's not a painful shock when the bill arrives. Although it may seem like a big increase, the UK will still have the lowest rate of Corporation Tax among the G7 countries. Please note that the corporation tax rate will remain at 19% if the company has profits below £50k, and marginal relief will apply on profits between £50k-£250k.

First Year Allowance

If you are a company and planning to invest in plant or machinery – now (between April 2021 and March 2023) is a good time to do that as you get a 130% first year allowance against that investment. This category includes anything that you keep to carry out your business, so it's not confined to manufacturing equipment and plant - but can include any office equipment and things like fitting kitchens, bathrooms, etc. This has been introduced to encourage large companies to invest in capital spend now rather than waiting until the corporation tax rate increases. Bear in mind that there will be a balancing charge if you subsequently sell the equipment.

This tax relief is in addition to the Annual Investment Allowance which is still £1m - but only until December when it will drop back to £200K.

Income Tax

The tax threshold normally increases by a few hundred pounds a year, but this year the higher rate will go up to £50,270 and then remain frozen for five years. That means that as pay increases more and more people will move into the higher tax band. Time to suggest your employees look at contributing to a pension scheme, perhaps.

The Coronavirus strategies

Almost everyone has been operating under strange conditions for the past year and in addition to the various grants and loans, the government has recognised that there needs to be some flexibility for businesses who are struggling - and their employees.

  • The date on which a 5% surcharge on income tax outstanding applies has been put back a month to 1 April.
  • For the self-employed businesses losses could normally only be carried back a year, but this has now been extended to three years. This applies for losses between 1 April 2020 and 31 March 2022 only.
  • The government plans to invest £100m to combat fraud in relation to the Coronavirus grants and loans. This Taxpayer Protection Taskforce will have 1265 new HMRC staff allocated to it. 

There haven't been as many changes as expected, which is positive. This means that much more radical changes can be expected in next year's Budget.