What Does Budget 2013 Hold for SMEs?
In the last few years, Budget Day has lost some of its excitement. The British public used to expect the unexpected and this feeling has largely been lost, with tax rates and changes generally being announced at the end of the previous year or even, in some cases, several years in advance. That was the case for the majority of the announcements in George Osborne’s 2013 Budget statement.
There are certainly some positives to take from this Budget outside of the headlined reduction in the rate of Corporation Tax to 20% for large companies (from April 2015) and the increase in personal allowance to £10,000 (from April 2014).
For example, the £2,000 employment allowance is very good news for SMEs, especially those that have a few staff and are paying employer’s National Insurance (NI) of at least £2,000. In some cases, this allowance could wipe out the NI liability in full, therefore reducing the “tax on jobs” burden and giving the business more cash for growth.
The idea of the trade-off of employment rights against being given a piece of the business (receiving shares) was an interesting one when first announced. The theory goes that if you take shares in the business and give up various employment rights, when you come to sell the shares (after the company has grown) any sales will be exempt from Capital Gains Tax, which could be substantial. However, watch out for the limit on the value of the shares and the Income Tax/NI implications when the shares are given, as these factors will affect if it is a workable incentive. Start ups and early stage businesses will be able to take the most advantage here.
For businesses looking to retain key staff, the Enterprise Management Incentive (EMI) Scheme has been a scheme of choice over the last few years, but with the introduction of Entrepreneurs’ Relief, the practical implementation of EMI schemes had to change to maintain advantage of the tax benefits that were intended for the scheme. The Budget removes the requirement on businesses to exercise their options 12 months in advance of a company being sold, and the minimum percentage of shares required. EMI schemes can be a very useful tool in a business and with these long overdue changes, it makes it more favourable for the employees to take part.
Fundamentally, the 2013 Budget focused on employment and helping businesses grow. There is a current trend in certain sectors to create very high level technical skills, which is only going to be good for the UK. The more technological/scientific knowledge we have here, the more opportunities we have to increase exports and sell this knowledge. The new cash-back option for large companies completing research & development work will create new opportunities in industry and hopefully increase the spend in this area.
Whilst on one level Budget Day may have lost some of its excitement, looking at the positive approach to assisting the growth of business, I’d say the exciting times can start today.
Simon Clark is a partner at the Redhill office of top 20 chartered accountancy firm Kingston Smith LLP.