Clive Lewis, head of mid-sector issues at the Institute of Chartered Accountants for England and Wales (ICAEW), agrees that the government ‘has some credibility to re-establish’ when it comes to the concerns of entrepreneurs.
‘Previously, whatever you thought of the substance, there was a lot of rhetoric about entrepreneurship,’ says Lewis. ‘This was totally absent from the pre-Budget report last year.’
For owner managers, the changes to capital gains tax (CGT) are likely to be most crucial. Taper relief is to be withdrawn and a flat rate of 18 per cent introduced on the sale of business assets to replace the old base rate of ten per cent.
‘The changes to CGT will affect not only the relatively few business owners thinking of selling, but many others too – not only private equity, but also life assurance firms, for example, which will pay more tax on the gains they make on investors’ behalf.’
The Chancellor is expected to introduce a concession for the first £1 million of capital gains, which would still be taxed at ten per cent. However, Lewis points out that this is a lifetime threshold which will chiefly benefit retiring business owners rather than the ‘serial entrepreneurs’ who create ‘a lot of innovative, high-growth businesses’.
Other anticipated measures include a crackdown on income shifting, which allows smaller family businesses in particular to lighten their tax burden by splitting income between various members of the family.
‘Apart from the obvious tax implications, there’s a real heavyweight record-keeping implication here,’ says Lewis. ‘Business owners will have to keep records of all contributions made to the business, by all shareholders or partners, which will make life more difficult.’
Lewis concludes that with the ICAEW’s business confidence monitor hitting a three-year low, a high priority for the government should be to encourage entrepreneurship.
‘Low business confidence means that businesses will be cutting back on investment and showing reluctance to take on new staff, though whether or not they are actually thinking of getting rid of staff is yet to be seen.
‘The environment for businesses is quite a lot more hostile than it was last November when the Chancellor announced his proposed changes in the pre-Budget report.’
