Newbury Business Today

In addition to being the start of a new tax year, April is also the beginning of many businesses accounting year. While a new year brings fresh enthusiasm and thoughts of how to move a business forward, the Government is always keen to cash in further on our success.

The first tax hit is on the rate of corporation tax, which increased from 20 per cent to 21 per cent this year. This is the second increase in as many years and unfortunately not the last, as a further one per cent increase is due to come into effect next April.

The second hit is for those who are planning to sell their business or perhaps a business asset. Watch out for the changes in capital gains tax (CGT) as when changes were first announced late last year, we all feared the worst for small businesses. Although the Chancellor has relented to a certain extent with his introduction of ‘entrepreneur’s relief’, this relief has not been extended to those selling certain business assets, so some the initial fears have been realised.

For example, if you are selling your business, from April 6 you are eligible for ‘entrepreneur’s relief’ which gives business owners a £1m life-time CGT allowance, with an effective tax rate of 10 per cent. Any disposal proceeds above this allowance will be taxed at 18 per cent.

In addition, if you are selling a business asset such as agricultural land or a building such as an office, a double whammy occurs, as a sale prior to April 6 this year would have been eligible for indexation relief on the purchase cost of the asset (if the asset had been held prior to 1998) in addition to business asset taper relief, in itself giving an effective tax rate of 10 per cent. Today if you sell the same asset, there is no indexation relief and the sale proceeds will be taxed at a straight 18 per cent.

The tax hat-trick concerns changes in capital allowances. On a positive note, all businesses can now write off 100 per cent of the first £50,000 investment in plant and machinery each year against taxable profits, under the new ‘Annual Investment Allowance’ scheme. However, at the same time, investments in plant & machinery beyond £50,000 or those that fall outside the AIA scheme can only write off 20 per cent of the cost, down from 25 per cent.

And finally, just when you thought there could not be more, if you own a business property which is currently not let, from April 6 this year the reform of empty property relief means that full business rates will be due on empty shops, offices and industrial units after six months of being empty. Before this change, no rates were charged on an empty commercial property for the first three months, with a 50 per cent reduction thereafter.

In an ever changing and more complicated tax system, despite the Government’s claims to the contrary, the advice of accountant Emma Thomas, of Newbury accounts EJBC, for small businesses is simple, get advice from a reputable and qualified source to keep up to date and plan effectively for legislative changes, which as shown in this article, can dramatically affect plans you may have for your business both now and in the future.

* Emma Thomas is a Chartered Certified Accountant & Chartered Tax Advisor. She is a director of EJBC Chartered Certified Accountants, based in Newbury.