BKL tax partner David Whiscombe comments in Tax Journal about how owner managed businesses fared in the 2015 Budget.
The article is also available as a pdf and on the Tax Journal website.
In a Budget that had little to say specifically about owner managed businesses, the most striking changes were to entrepreneurs’ relief, writes David Whiscombe (BKL Tax).
The withdrawal of entrepreneurs’ relief in respect of companies whose only activity is to hold shares in a joint venture company is not unexpected. Using such companies to aggregate what would otherwise be non-qualifying shareholdings was never within the spirit of the relief. More controversial is the withdrawal of relief in respect of companies where the only trading activity is carried on in partnership or as members of an LLP. Coming after last year’s attack on ‘mixed member’ partnerships, this underlines HMRC’s hostility to partnerships involving companies, though the underlying justification for such hostility is not entirely clear (at least not to the writer).
As to the change to the rules on ‘associated disposals’, there is an understandable logic in restricting the relief to cases where the ‘main disposal’ is substantial; but the proposal seems flawed in its detail. For example, a partner owning less than a 5% interest in a partnership will not now be capable of meeting the requirements for associated disposal relief, even if the disposal is associated with his complete withdrawal from the partnership on retirement. Replacing one anomaly favouring the taxpayer with another favouring HMRC is hardly something to be welcomed.
Already in place, of course, is the Autumn Statement change denying entrepreneurs’ relief on the transfer of goodwill to a company of which the transferor is a related party (though the Budget does announce a small technical change to that rule, correcting an unintended effect of the change).
There has been much discussion as to the cost to the exchequer of entrepreneurs’ relief and talk of its wholesale abolition. It is to be hoped that now these perceived anomalies have been removed, the fundamentals of the relief will be safe. Indeed, the proposal to consult on the extension of the relief to gains made by academics on the disposal of shares in ‘spin out’ companies bespeaks a reassuring commitment to the continuation of the relief.
Elsewhere, the chancellor declined to commit himself to the level to which the annual investment allowance would return, following the end of the £500,000 enhancement in December 2015. It is encouraging that he recognised that £25,000 would ‘not be remotely acceptable’, but a commitment to something more specific than ‘a much more generous rate’ would, perhaps, have been welcome.
Farmers will be happy that the two-year period over which they may average their profits for tax purposes is to be increased to five (but only with effect from 2016/17). There is, however, no indication that the enhancement will also apply to the creators of ‘creative works’, who currently benefit from the same two-year averaging as farmers, let alone to other businesses with notably volatile profits.
The proposed abolition of class 2 NICs seems to have generated an interest out of all proportion to its value, especially as one suspects that the modest saving it represents is likely to be clawed back (and more) by adjustment of class 4 contributions.
OMBs, like other taxpayers, that have ‘something to declare’ will need to consider HMRC’s apparent rethink on disclosure facilities. Both the Liechtenstein and the Crown Dependencies disclosure facilities are to be brought to an end earlier than expected on 31 December 2015, presumably to clear the decks for the introduction of a new, much less generous disclosure facility. For the same reason, one suspects that the early closure of the various settlement opportunities currently applying to specific arrangements may also be in prospect, though this is at present mere speculation.