Businesses urged to delve into Budget details for important tax changes
Following last week’s Budget, Yorkshire tax experts are advising businesses to delve further into the detail and make note of important changes that could see them win or lose out.
The announcements set out by the Treasury will mean good news for investors in “knowledge intensive” companies as well as businesses investing in green equipment, according to York and Leeds-based accountancy firm Garbutt + Elliott.
But they spell bad news for some one-off company ventures such as Special Purpose Vehicles, as well as companies selling assets after December.
Rob Durrant-Walker, head of business tax at Garbutt + Elliott, said: “There are many changes that have gone under the radar since Philip Hammond’s speech, but they could make the difference between a company being a winner or a loser. It’s definitely worth businesses looking beyond the headlines and getting expert advice.”
Knowledge intensive companies
Investors in “knowledge intensive” companies are winners from the Budget, as the government is expanding tax relief for users of Enterprise Incentive Schemes (EIS) and Venture Capital Trusts (VCT).
The annual EIS limit that an individual can invest in a single company will rise from £1m to £2m, with the company able to bring in up to £10m-a-year through these means.
Rob Durrant-Walker added: “A company is considered knowledge intensive if it spends 15 per cent of its operating costs on research and development during the three years prior to investment.
“HMRC is also widening the definition of what a knowledge intensive company is, meaning more ventures for investors to buy into and more finance available for companies.
“Around 4,000 individual investors a year in EIS and VCTs are likely to benefit from this measure.”
The company must also show a commitment to developing its intellectual property, creating new products or employing at least a fifth of employees at masters degree level or higher.
Businesses going green
Some loss-making businesses are Budget winners, as they can benefit from an extension of repayable tax credits to 31 March 2023.
For businesses that make a loss because of their investment in energy efficient equipment, the loss can be surrendered to HMRC for a repayable credit.
Rob Durrant-Walker explained: “This move will help cashflow for a number of companies with green credentials investing in energy efficient technology. It will also stimulate the market for green technology and bring in sales for products that qualify for the Enhanced Capital Allowances (ECA) list.”
The energy-efficient technology must be on the ECA list to qualify for the repayable tax credit. Most solar panels don’t qualify as they are now considered standard energy saving devices.
Removal of company Indexation Allowance
Many companies will lose out from the removal of Indexation Allowance, which sees HMRC increasing tax on companies holding tangible capital assets and sold for a profit.
Rob Durrant-Walker commented: “This was the first item announced under the ‘anti-avoidance’ section of the Budget, but company Indexation Allowance is nothing of the sort.
“Despite the government’s excuses for its removal, such as simplifying tax computations and reducing errors, this seems nothing but a tax raiser for the Treasury.”
When a company makes a capital gain on or after 1 January 2018, the Indexation Allowance that is applied to reduce the profit will only be calculated up to December 2017. Companies will still get the allowance over their period of ownership and up to December 2018.
Rob Durrant-Walker added: “The phased method of removal is more palatable than when HMRC did the same to individuals in 2008. Then they simply abolished it and individuals lost all inflation allowance for their entire period of ownership.”
