Recent news about a rise in tax receipts means the Chancellor has a rare opportunity to deliver tax cuts and make simplifications to support small and medium-sized businesses. But, asks will he use it?
While a tax giveaway is extremely unlikely ahead of the start of Brexit negotiations, the Chancellor is under pressure to demonstrate his support for SMEs and other UK-based businesses, at the same time as sending positive signals to the international business community.
While SMES may not exactly be hoping for changes to Entrepreneur’s Relief, this could be an opportune time for the Chancellor to do just that. Intended to incentivise entrepreneurial investment, Entrepreneur’s Relief has been set at 10% since 2008. However, the incentive it provides has lessened significantly due to recent falls in the rate of Capital Gains Tax (CGT) relief, which is currently set at 20%.
With this in mind, if the Chancellor chose to cut CGT relief again - to say 15% -he could create the perfect excuse to abolish Entrepreneur’s Relief altogether. Taking this approach would not only soften the blow for entrepreneurial investors, it would also simplify the tax system considerably.
SME business owners will also be hoping for some last minute changes to the controversial Apprenticeship Levy, which is due for introduction shortly. When combined with plans in place to digitise tax payments for all businesses, the Levy is expected to bring a significant administrative burden.
Plans announced last year to ‘align’ National Insurance Contributions (NIC) for employees and employers at £157 per week from April represent a significant cost increase for employers. To address the Chancellor could consider shaving a pound a week off NIC rates. This would make a big difference to SMEs in the tech and manufacturing sectors, which are becoming increasingly concerned about rising employment costs and the prospect of post-Brexit skills shortages.
The headline rate of Corporation Tax is already planned to reduce to 17% in 2020. However, further changes should not be ruled out. For example, bringing forward this planned reduction would allow the Government to send a clear message to the international business community that Britain is a great place to locate and invest. Ultimately, this will protect UK jobs.
While tax receipts are going up, the Chancellor can’t afford to act rashly at this sensitive time – just prior to the submission of Article 50 and the start of Brexit negotiations with the EU. By balancing interests carefully, however, he has an opportunity to make changes that will reassure businesses and support investment, whilst also making some sensible simplifications.
Richard Godmon is partner and head of tax at accountancy firm, Menzies LLP.