Business owners are being urged to act fast to capitalise on a valuable but temporary opportunity for pension planning, created by changes announced in last month’s pre-Budget report.
Under current rules, businesses can carry back unlimited trading losses to the previous fiscal year. However, a temporary rule change announced by the chancellor will allow businesses to carry back up to an extra £50,000 in losses to be offset against profits in the two preceding years.
Losses can be deliberately created in the current year by paying in a company pension contribution, but these rules only apply to accounting periods ending between November 24 2008, and November 23 2009.
As most companies’ accounts run to December 31, entrepreneurs have less than a month to pay the contribution before the rules change back again.
Business owners have criticised the capital gains tax Entrepreneurs’ Relief for being less valuable than the business taper relief it replaced, but it does hold an opportunity for company owners to share wealth with family members.
Although sole share-
holders or owners are stuck with a £1m lifetime limit on the gains that can be taxed at 10 per cent, rather than 18 per cent, spreading the shareholdings among spouses or family members can increase the total amount of wealth taxed at the lower rate.
Baker Tilly, an accountancy firm, notes that the relief is available to any member of a trading partnership and to the owner of at least 5 per cent of a private trading company’s ordinary shares who holds an office with the company.
The adoption by national governments of the European Union’s Small Business Act this week
was welcomed by business and political groups in Brussels.
The SBA is a policy framework covering a range of legislative proposals and non-legislative commitments to help small businesses across the EU, including measures to improve access to government contracts and to research and development funding.
Arnaldo Abruzzini, secretary general of the association of European Chambers of Commerce, said: “National governments are quite right to be implementing recovery packages, but these largely fiscal and monetary measures need to be backed up with a greater commitment to alleviating the burdens encountered by small and medium-sized enterprises.”
HM Revenue & Customs has seen strong interest in its support service for businesses wishing to defer tax payments. It received more than 6,200 calls to the official helpline and about 190,000 hits to the website in the first week alone.
Figures released by
HMRC showed that more than 2,700 time to pay agreements had been made on the spot, accounting for almost £60m of tax payments.
Most calls concerned VAT debts, which HMRC attributed to the fact that the deadline for payment of October 2008 returns was approaching.
This week’s rush of banking pledges to small business customers by some of the major lenders means that many entrepreneurs will feel the full benefit of Thursday’s one percentage point cut in the interest rate.
Lloyds TSB issued a six-point charter, including a commitment to pass on “in full” all Bank of England rate reductions in 2008 and 2009 to its commercial customers. It also promised that small business lending would not be switched from the base rate to the London Interbank Offered Rate (Libor), which has been stuck at a higher level.
Bank of Scotland, part of HBOS, added its set of commitments to small business customers, including a promise to maintain the link between overdrafts and the base rate.
After the Bank cut its rate to 2 per cent on Thursday, Bank of Scotland said borrowings linked to base rate would enjoy the full 1 percentage point reduction in rates. Lloyds TSB made a similar pledge.
Barclays said its Local Business overdraft rates and the majority of Local Business loans would be moved immediately in line with the rate reduction.
