THE small-business community has been thrown into yet more confusion with the news that the government plans to mitigate the axing of business asset taper relief with some form of capital-gains exemption for people who are close to retirement.
The Treasury indicated last week that it was considering making a concession to help business owners who were selling up to retire. However, without any details of how the scheme would work or even the size of any likely tax relief, small-business organisations said the move has caused yet more uncertainty among its members.
Stephen Alambritis, a spokesman for the Federation of Small Businesses, said: “There is a whole load of confusion among small-business owners right now. First the government announced it was ending taper relief and now it has lobbed the idea that it will introduce some form of retirement relief into the mix. People now have no idea what to do and accountants are finding it hard to advise them.”
It is understood that the Treasury is looking at several ways of lessening the impact on those retiring, including allowing the first £100,000 of profits to be tax free, keeping the 10% tax rate for retirees and introducing a lower rate of tax for profits up to a certain limit. The Treasury is planning to unveil the changes before the end of the year.
A Treasury spokesperson said: “A simplified tax system for capital gains is the right thing to do and will make the system more straightforward and sustainable while incentivising investment and enterprise. The Treasury is working with representatives of the business community on the details of the reform and on measures to improve the business environment, and to continue to encourage entrepreneurship.”
Small-business organisations have been fiercely campaigning against the chancellor’s decision to end business asset taper relief, a move that would increase the effective tax rate paid by owners selling their business from 10% to 18% from next April.
More than 15,000 people have signed a petition put up on the Downing Street website, Number10.gov.uk, calling for the government to drop its plans.
And many more have joined the Facebook group Entrepreneurs Against the Abolition of Taper Relief in the hope that the chancellor will be persuaded to change his mind.
Duncan Cheatle, the founder of Supper Club, a forum for entrepreneurs, launched the Downing Street petition. He said: “The reaction from small businesses has been dismay, anger and disbelief. Taper relief is one of the biggest incentives to setting up a business. People are really angry about this in a way that they haven’t been about lots of other things.”
Small-business owners close to retirement cautiously welcomed the news that the government would be introducing some form of retirement relief for them. However, they said that if the tax relief is capped at £100,000 it would be of little practical help.
Chris Twiselton, 57, had been planning to sell his motor sales business near Kettering to fund his retirement. “This business is my retirement because my pension won’t pay me enough to retire on,” he said. “But anybody looking to buy now is going to hit me hard on the price so it is going to cost me a lot of money either way.”
For Peter Bradley, 62, much of the damage has already been done. Bradley, who has owned the Post House Antiques shop in Bletchingley, Surrey, for the past 35 years, had hoped to sell his business to fund his retirement but now faces an overcrowded market for commercial property and buyers offering silly prices in the light of the government’s move to axe taper relief. Instead of selling the business outright, he is having to consider leasing the premises.
“I have had to completely rethink my retirement plans,” said Bradley. “I am furious and I am having sleepless nights about it. Buyers who are coming forward now are making stupid offers because they know that people selling commercial properties have got to sell before April or they will be liable for tax of 18%. They know we have got our backs against the wall.”
Business advisers criticised the government’s clumsy handling of the situation. Peter Pen-ney, tax partner at PKF, a firm of accountants and business advisers, said: “The latest announcement simply illustrates short-term ‘on the hoof’ setting of tax policy rather than considered policy designed to achieve clear economic objectives.”
He added: “The most worrying thing is that the government appears to be using tax policy to address political criticism. That’s a recipe for economic chaos that will frighten entrepreneurs away from Britain. The business community is rightly becoming nervous about the stream of announcements pouring out of the Treasury.”
Since meeting the chancellor to express their dismay at his proposals, the four main business groups – Federation of Small Businesses, Confederation of British Industry, British Chambers of Commerce and the Institute of Directors – have been working together to find a solution for the government to adopt in the place of scrapping taper tax relief, which would amount to an 80% tax hike on businesses. They are planning to present their proposals to the Treasury in January.
Another group of people who have been badly caught out by the government’s move, but are less likely to be spared, are those who had already sold their businesses but had taken some of the money as a deferred loan note.
Mike Warburton, senior tax partner at Grant Thornton, the accountancy firm, said: “I have a lot of clients who sold their business on an earn-out and took part of the money upfront and part of it on deferred terms dependent on future profits. The law at the time said they would be taxed at 10% but now they are going to be taxed at 18%. This is retrospective taxation and they are furious about it. They feel as though they have been stabbed in the back. It is a bit like David Beckham taking a free kick and while the ball is in the air they move the goal posts three feet to the left."
Warburton said that transition provisions should be put in place to protect those affected, by which people who had taken loan notes when selling their business could carry over taper relief for those loan notes.
“People are genuinely bemused as to how the government can have been so inept to do something like this without recognising the position they are in,” he said.
