By Daniel Hunter
Chancellor of the Exchequer, George Osborne, announced his 2013 Budget offering a range of new business incentives to help grow the economy including an employee share scheme and National Insurance employer allowances.
But, the success of these plans “remains to be seen” as Stuart Watson, Director of Tax at chartered accountancy firm Hall Morrice comments.
“The Treasury has announced that the corporation tax main rate will fall to a flat 20% by 2014. However, there will be no advantage for any SMEs generating taxable profits of under £300,000 because they already pay tax at 20% and were never subject to the higher rates. This will just be a benefit to a small percentage of larger businesses and not to SMEs which make up the largest percentage of business types in the UK and account for half the country’s employment.
“The real benefit will be to the smallest of businesses who will receive an employment allowance to the tune of £2000 per tax year from April 2014. The allowance will be offset against employer NI contributions and will reduce the cost of taking on new staff for those looking to expand their workforce. For some very small businesses or charities having this extra boost will allow them to take on additional staff as the money will be a comparatively large amount.”
Companies will also be entitled to corporation tax relief when it grants employees the opportunity to acquire shares at less than the market value. An employee who agrees to give up certain employment status rights in return for this will be treated as if he or she had paid £2,000 for the shares and so will not suffer any income tax or NIC charges on that amount.
Stuart continues, “This is an attempt by government to encourage employee participation in the company they work for and in turn foster a greater sense of involvement in the company’s future success. It is aimed at all employees but it remains to be seen if the employees will see the potential tax benefits as sufficient to compensate for the loss of employment rights. For the employer, it potentially means greater administration which may not always be welcome.
“In addition, should a company decide to sell, up to £50,000 of gains will be exempt from capital gains tax. This will apply to shares issued on or after 1 September 2013 which will be advantageous to employers who are planning an exit strategy. This is particularly pertinent in the north east where the economy is still strong but the levels of deal-making still remain supressed giving business owners an alternative to a sale to an external party as an exit strategy.”
The Treasury also announced plans to increase the income tax personal allowance to £10,000 by 2015/16. This will give most people an extra £379 a year.
Stuart continues. “This will obviously be a big benefit to families and those on a lower income as the costs of living increases. It is important to note however, that some of the poorest earners won’t benefit from this as their incomes are already below the personal allowance.
“In addition, the higher tax rate threshold will be lowered from the current £42,475 of gross income to £41,865 by 2015/16 meaning that an estimated extra one million people will be paying higher taxes. This only adds more pressure to middle class families as the country struggles out of the recession. Many people will have to start paying 40% tax for the first time and will not get a chance to reap the full benefits of the new personal allowance.”
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