Writing for Tax Journal, BKL consultant David Whiscombe examines the impact of Spring Budget 2023 on SMEs.
Increasing the pensions lifetime allowance was widely trailed. Abolishing it, and increasing the annual allowance by 50% to £60,000, wasn’t. Although these measures have been introduced primarily to remove the immediate and deferred tax charges arising on high-earning members of defined benefit schemes, such as NHS consultants, other taxpayers – especially SMEs whose pension arrangements are almost always defined contribution schemes – are collateral beneficiaries. Whether the increased limits will encourage many over-50s to remain in or return to economic activity or simply enhance the attractions of pensions as an inheritance tax shelter remains to be seen.
A couple of capital gains tax changes are noteworthy for SMEs.
Completion of a contract results in the relevant disposal being deemed to have occurred (in most cases) on the date the contract was made. Since that may have happened in a tax year many years earlier, for which assessing time limits may have expired, the rule has always presented difficulties for HMRC – even more so when attempts have been made to exploit the anomaly to avoid tax. The change (to make the assessing time limit run from completion) is a sensible one that should have been made a long time ago. It should be noted, however, that in such cases interest on the tax will run from the due date for that earlier year, which may be an unwelcome additional cost at current interest rates.
The second notable change ensures that where on a company sale effected by share-for-share exchange a UK company is acquired by a non-UK company, the new shares cannot benefit from ‘remittance basis’ in the hands of a shareholder of non-UK domicile. Note that it’s a targeted anti-avoidance measure, applying only where both the old and the new are close companies (or would be if UK-resident) in which the individual in question holds more than a 5% interest. Thus, it will not normally be in point in the common case of a foreign-domiciled entrepreneur selling his or her UK company in return for equity in a publicly-quoted overseas acquirer. The UK and overseas tax treatment of such cross-border disposals can continue to be attractive.
‘Full expensing’ is 2023-speak for first-year allowance, which will be available for the three years from 1 April 2023 at 100% on ‘main rate’ expenditure and at 50% on ‘special rate’ expenditure – terms with which tax advisers will already be familiar. It is available only to companies. Other businesses may be able to claim annual investment allowance (AIA), which is to be retained permanently at £1m per annum so is in most cases (Mr Hunt suggested 99%) just as good or better. Falling between two stools, however, are partnerships or LLPs with even a single corporate member: such businesses qualify neither for ‘full expensing’ nor AIA.
Modest changes to the SEIS rules are welcome but not life-changing for SMEs, with limits on gross assets, funds raised and individual limits all increasing by useful amounts.
A couple of small simplifications to the EMI option grant process will be welcomed, as will be the extension of the deadline for notification to HMRC from 92 days after grant to 6 July following the end of the tax year (from 6 April 2024). And changes to the company share ownership plan – aimed at companies at the next level up from EMIs, but not restricted to such companies – may make that scheme worth a second look by more businesses.
Finally, the smallest of unincorporated businesses may be interested to note consultation on extension of the cash basis; for such businesses the simplicity of that scheme may be a key driver. Companies, however small, are excluded.
This article was published in Tax Journal Issue 1611. It is also available on the Tax Journal website.
Spring Budget 2023 coverage from BKL’s tax specialists also includes:
