Budget Update March 2010 Business Tax Announcement

The Chancellor has now set out his fiscal stall prior to the expected general election in May. As forecast there is a degree of electioneering in the speech! This report focuses on some of the tax changes we can now expect. We will also have further changes to deal with after the election.

BUSINESS TAX ANNOUNCEMENTS

Annual Investment Allowance

At present it is possible to write off the full cost of up to £50,000 of capital expenditure on qualifying assets. This limit is doubled from 1 April 2010 (for corporation tax) and 6 April 2010 (for income tax) to £100,000.

First Year Allowance

The temporary first year allowance of 40% ceases to apply on 31 March 2010 (corporation tax) and 5 April 2010 (income tax).

Tax incentive for British Video Games industry

The Government is to seek State Aid Approval to introduce a new tax relief for the UK video games industry. Consultations on the shape of the new relief will begin later this year.

Losses – carry back

Corporation tax

The temporary extension of trading loss carry-back from one to three years for losses up to £50,000 continues for company losses arising in accounting periods ending between 24/11/08 and 23/11/10.

Income Tax

The temporary extension of trading loss carry-back from one to three years for losses up to £50,000 continues for the 2008-09 and 2009-10 tax years for unincorporated businesses; consequently this relief for income tax purposes will cease 5th April 2010.

Corporation Tax Rates

For the Financial Year commencing 1 April 2011, the small profits rate of corporation tax remains at 21%.

For the Financial Year commencing 1 April 2011 the main rates of corporation tax are set at 28%.

VAT increased registration and deregistration limits

The taxable turnover threshold, that determines whether you should be registered for VAT, will increase from £68,000 to £70,000 from 1 April 2010. The taxable turnover threshold that determines whether you could apply for deregistration will be increased from £66,000 to £68,000 on the same date.

Business Payment Support Service

This service which allows you to negotiate extended payment of your tax dues, including VAT, Corporation Tax, Income Tax and NICs and PAYE, is to continue.

HMRC will require businesses seeking Time To Pay (TTP) arrangements for arrears of £1m or more, to provide an Independent Business Review (IBR) in support of their request. It is expected that the new requirement will be implemented from April 2010 and HMRC will informally consult on how this will work.

There will be no change for other businesses.

Capital Gains Tax

There was speculation prior to the Budget that the CGT rate would be increased to close the gap between the present 18% capital gains tax rate and the more punitive income tax rates which peak, from 6 April 2010, at 50%.

Surprisingly there is to be no increase and as an unexpected bonus the lifetime limit of gains that can be covered by Entrepreneurs’ Relief is to be doubled, from £1m to £2m.

The present annual exempt amount for individuals of £10,100 is unchanged for 2010-11.

Anti-avoidance legislation

There are the usual spate of complex issues which are coming under HMRC scrutiny – this includes closer exchange of information with certain off-shore tax havens that have benefited a particular high profile individual recently!

One of the more relevant areas of proposed legislation is with regard to Employee Benefit Trusts and similar arrangements. HMRC consider these as being used to disguise payments of remuneration with a consequent loss of tax and National Insurance. They have declared their intention to introduce anti-avoidance legislation to take effect from 6 April 2011.

Fuel Duty

The expected increase of 2.76p per litre in fuel duty that was due to be implemented on 1 April 2010 is now to be phased in as follows:

  • 1 April 2010 increase of 1p per litre
  • 1 October 2010 increase of 1p per litre
  • 1 January 2011 increase of 0.76p per litre
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Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.