Following months of business campaigning and Government u-turns, the draft legislation for the absurdly-titled “Entrepreneurs’ Relief” scheme has finally been published.
From 6th April 2008, the current Capital Gains Tax business taper relief will be abolished, and replaced by a single 18% CGT rate on the disposal of business assets. This change means that the capital gain made by selling a business built up by many years of hard work will be taxed at 18%, instead of the effective rate of 10% under the current rules. This represents a massive increase of 80%.
Seemingly bowing to pressure from business organisations, the Government has provided a “concession” to allow a 10% rate on the first £1million of business asset disposals. This is a lifetime allowance and hardly encouraging for serial entrepreneurs.
It does seem that this Government is hopelessly misguided when it comes to small business legislation. Given that small companies provide half the UK’s output, and employ half the nation’s workforce, it would surely be prudent to keep them on-side, and encourage the entrepreneurial spirit this country prides itself on.
Government hikes Small companies’ tax rate but cuts Corporation tax rate
Instead, this Government has decided to increase the small companies’ tax rate from 19% to 22% by 2009, impose a whole wave of red tape on small businesses – including IR35 (which apparently raises no money but causes a lot of uncertainty), and most recently the so-called “income shifting” proposals which are aimed directly at punishing small, family-run businesses.
It doesn’t help that the main rate of corporation tax is due to fall from 30% to 28% at the next budget as this would imply a concerted effort to shift the tax burden (as well as the administrative burden) from larger companies to smaller businesses.
By initially choosing to impose a flat 18% CGT rate on business sales, and then subsequently providing the £1million entrepreneurs’ relief “concession”, it may appear to those potentially unaffected, that the Government has been kind to small businesses.
The “concession” is of course better than what could have been, but it is still woefully inadequate and leaves a lot of questions unanswered. For example, it would appear that entrepreneurs who have already sold their businesses in exchange for bonds / loan notes (which have yet to mature) will have to pay the full 18% rate instead of 10%!
We will continue to update Bytestart with all Budget-related information, before and after 12th March 2008.
James Leckie, Bytestart Editor
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