How the Autumn Budget Will Affect How Businesses Pay Tax After April 2015
Contributed by Francis Clark Tax Consultancy
19 January, 2015
The Chancellor George Osborne has proposed some major changes to the way businesses will pay tax from April 2015.
If the proposed changes go ahead, small, medium and large businesses will all be affected. As a business owner will your company's profit be higher or lower from April 2015 following the Autumn Statement?
Most affected will be the large multinational firms such as Google, Apple, Starbucks and Amazon. The Chancellor has proposed imposing a 25% levy on their profits which are moved offshore. This Google tax is intended to target all companies that minimise their UK profits, thus lowering their UK tax bills - and it is estimated that it will raise more than £1bn over the next five years.
Margaret Hodge, Labour Member of Parliament for Barking, however, has indicated that the extra revenues accrued are just a small percentage of the profits made by these large companies.
An OECD model for reporting such matters by many countries will be adopted by the UK from April 2015 if Osbornes legislation goes through.
The way in which this is done is based on multinational companies providing information about taxed paid, profit allocation and economic activity in each country to HMRC (AS, 2.143).
The government will also consider whether to take action against serial avoiders (AS, 2.158), including the possibility of publishing the names of those who have numerous avoidance schemes, with suitable punishment.
Banks will now also have to pay their fair share, as they will not be able to use the losses accrued during the financial crisis to reduce tax payments.
The government said it was unreasonable that the losses of roughly £17bn could be used to eliminate tax on current profits.
Without the changes, some banks would not pay corporation tax for another 20 years. That's totally unacceptable, Osborne said. The banks got public support in the crisis and they should now support their public in the recovery.
He intends to limit the ability of banks to offset losses against profits and change the way in which they account for bad debts.
It has, however, been argued that forecasting the size of the of banks' profits over the next few years is too complicated.
Most business owners, however, belong to the SME (small and medium-sized enterprises) category. This group appears to have done well out of the statement in a bid to get the UK economy moving.
Small and Medium-Sized Businesses
In order to generate new products and services and thus boost the job market, Osborne has proposed to increase the Research and Development tax credit for small and medium-sized businesses to 230 per cent and the credit for large firms to 11 per cent.
With R&D as a personal priority for the Chancellor, he hopes this will allow these businesses to enter a period of growth. This is, however, debatable as it is only been raised 5 per cent from the previous 225 per cent and thus has not been met with much enthusiasm.
The government will provide new guidance for R&D tax credits for small businesses. In January 2015, it will start considering how to help smaller businesses with the problems that they face when it comes to R&D tax credits.
In the budget statement the Chancellor said a "structural review" of Englands business rates system should be carried out. The rates paid by English businesses are the highest in Europe and have been blamed for the decline of the High Street.
Business rates are charged on most non-domestic premises, such as offices, warehouses, factories and shops. They are based on a rateable value set by the Valuation Office Agency, with revaluations usually taking place every five years.
Many small businesses, especially those just starting up, can find the services of a tax consultancy firm invaluable, even if it is just to explain the business rate legalities. Firms such as Francis Clark Tax Consultancy can provide very helpful advice to a wide range of businesses in many different sectors. They provide corporate tax advisory services to businesses of all sizes, ranging from tax transaction support to mitigating tax risk and minimising cost.
As well as offering tax advice, they can often give general advice on how to maximise the growth of a company, as well as explaining the reasons for the amount of a bill.
Currently, there are big discrepancies in business rates bills. A lucrative online company in a small office can pay much less than a less profitable company that sells a similar product in-store only.
By April 2015, discounts for retailers with properties that have a rateable value of less than £50,000 will be increased by £500 to £1,500. The rise is predicted to help some 500,000 companies with a relief on business rates to the sum of £1bn.
Small business rate relief is also to be extended for a year. This gives discounts of up to 100% on business rates to smaller businesses. The annual inflation-linked increase in business rates would continue to be capped at 2%.
The Budget statement has said that the extension of the small business rate relief scheme until April 2016 will mean 385,000 of the smallest businesses will pay no rates.
The Treasury said it will give full control of business rates in Wales to the Welsh government. There may be differences in Scotland and Northern Ireland.
Other Tax Reliefs
The Chancellor wishes to introduce a theatre tax break for orchestras and a new tax credit for children's TV producers.
Hospice charities, search and rescue and air ambulances are to be granted a much-needed VAT refund.
The Treasury has said that it will provide £400m to venture-capital funds which invest their money in SMEs. These are known as Enterprise Capital Funds.
Currently, businesses that take apprentices have to pay National Insurance, but this will no longer apply.
Mr Osborne said that the government wished to support companies that employed young people and trained them. Abolishing this form of taxation would help to do so.
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