FRS 102 represents a major change to the UK financial reporting landscape. Understanding how the changes will impact on your company’s tax position will help you…
The Chancellor named a number of well-known inventors and innovators as he laid out his measures for promoting and stimulating enterprise, particularly in the tech and innovation sectors.
The headline of the day was very much around entrepreneurs’ relief (ER) and the reduction of the lifetime allowance from £10m to £1m. This was largely as trailed with the Chancellor listening to representations that the ER allowance was equivalent to a pension for many small business owners and the allowance should be pegged at a figure similar to that of the pension lifetime limit of around £1m – and that is exactly what he did.
What had been predicted to some extent was the use of anti-forestalling measures. These are measures designed to prevent artificial transactions avoiding the attention of parliament before the full introduction of legislation. The Chancellor has introduced a range of such measures – but these go well beyond the norm and there will undoubtedly be much debate about what these measures actually do, the uncertainty that they might cause and whether certain aspects are appropriate and equitable or not. It also has to be said that the new legislation is not tremendously well written and the accompanying guidance leaves more questions unanswered than answered. We can only hope this is cleared up quickly.
The mainstream rate of capital gains tax (CGT) stays at 20% and the fact that there was no change to this figure is perhaps a relief with the loss of ER as the increase of the main rate of CGT would have been a painful double blow. However, future rises in CGT ought not to be ruled out.
There was also mention of a review of the EMI option scheme. At first glance this looks like a positive move with a view to extending its possible application. That combined with the retention of a £1m lifetime allowance for ER, means that EMI should remain a very powerful employee incentivisation tool, which has an important role going forwards.
In terms of R&D tax credits, the rate for large companies under the RDEC scheme has been increased from 12% to 13% which is very welcome. This will benefit mainly large groups of companies and those SMEs who do not qualify for the SME scheme. There appears to be no changes to the SME scheme apart from the announcement that the PAYE liability cap, which was under consultation, will now not be introduced until 1 April 2021.
The confirmed introduction of plastic packaging tax will also drive innovation in the food & drink and agri-business industries in particular and we hope to see an increased number of R&D claims as a result.
There were various announcements around R&D spending which are to be welcomed. These included defence related technology and also distilleries in Scotland. More time needs to be spent understanding how this money will be made available and also how it will make its way through to the businesses concerned.
The corporation tax rate was confirmed as remaining at 19% for the foreseeable future and this is welcomed. There was also an announcement of a further change in the way in which acquisitions of intangible fixed assets are dealt with by companies – this time from connected parties. This adds to an already confused picture and a patchwork of regimes and rules that makes this aspect of tax law ever more complex.
All in all, the Budget will be remembered for the emergency Covid19 measures, but from a pure tax perspective the anti-forestalling measures (from an ER angle) will be top of peoples minds – hopefully some of the uncertainty created by the very poor HMRC guidance will be sorted in the coming days and weeks – hopefully not months.