TaxCorporate TaxBudget 2010: Extra relief for entrepreneurs is welcomed by advisers

Budget 2010: Extra relief for entrepreneurs is welcomed by advisers

Chancellor's measures will drive M&A deals and help boost income for practices

The usual ire reserved for the chancellor post-Budget remained pretty much on
hold following announcements of little nuggets for SMEs.

Instead, most practitioners were more concerned with frantically calling
clients to tell them to hold off from selling their business until the newly
doubled entrepreneurs’ relief comes into force in April.

After speaking to their clients, the advisers calmed down enough to tell
Accountancy Age that doubling the lifetime relief for entrepreneurs was
not only a boon to the protagonists, but the advisers themselves.

Many small practices rely on M&A transaction work to keep them ticking
over. Doubling the relief will boost them and their clients, according to Julian
Dobbin, tax partner at Mercer & Hole.

“There was a worry that the chancellor would do something that stalled deals
– now there’s further incentive for them. It will drive deals going forward,”
said Dobbin.

His views were echoed by Stephen Herring, senior tax partner at BDO: “…It
recognises that creating successful new businesses is the lifeblood of the
economy.”

Other tax relief measures were introduced for SMEs. The annual investment
allowance on plant and machinery has been increased to £100,000 from £50,000,
while the small rate business relief on properties with rateable values up to
£6,000 will pay no business rates for a year from October 2010. For rateable
values up to £12,000 there will be “significant reductions”.

Of course, with all this the devil is in the detail. And looking at the
figures, it’s not exactly a huge giveaway.

Business rates relief amount to £400m over the next two years; entrepreneurs’
relief will cost the Exchequer just £5m next year and £75m the year after; while
the investment allowance will cost £260m in total by 2012/2013.

“The cynics might say that the benefits will be limited in the current
economic climate,” said Louise Somerset, tax director at RBC Wealth Management.

Others bemoaned the lack of a real attempt to ease the tax administrative
burden on SMEs, a constant bugbear.

“While the increase in the Annual Investment Allowance

on capital expenditure for small businesses will be a modest boost for a
number of smaller businesses, this is no substitute for much-needed reform to
the overly complex and onerous corporation tax system,” said Herring.

Looking ahead, with constant speculation that the government would close the
gap between the 18% CGT rate and 50% income tax band, the expectation is that
hitting CGT could be just around the corner: in a post-election Budget.

“The gulf between the 50% income tax rate and the 18% normal capital gains
tax rate appears increasingly unsustainable,” added Herring.

And some advisers could well have red faces and awkward conversations with
clients if they helped them sell their business recently ahead of what was
expected to be a negative Budget for CGT.

“There will be a considerable number of entrepreneurs who will be kicking
themselves,” according to Chris Maddock, head of private clients at Vantis.

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