Monday March 9, 2020

Small businesses and business owners looking to exit are among those who may be impacted by this year’s Budget

Speculation around the Budget, and what the Chancellor, Rishi Sunak, has in store is rife.

While the Conservative Manifesto will give some clues to the measures likely to be announced, we should also expect the unexpected as the Chancellor looks to grab the headlines in the first Budget since the General Election.

Expectations are high that the Government may introduce measures to make short-term borrowing easier for entrepreneurs in order to help them grow their firms, which would be welcome news for many small business owners.

There are also reports that the Government is set to scale back Entrepreneur’s Relief, a tax break which allows entrepreneurs to pay a lower rate of 10 per cent of capital gains tax, instead of the usual 20 per cent. Should this move be announced, it would have widespread implications for small business owners and could also have a knock-on impact for any business owners looking to shut up shop in the near future.

If a company’s directors are retiring, or they are having a change in circumstance, they may wish to wind up operations even if the business is still solvent. In this scenario, the shareholders may wish to close the business through the process of a Members Voluntary Liquidation (MVL).

A MVL is a formal liquidation procedure for solvent companies, which is often seen as a favourable option offering more tax benefits. Closing a company through this procedure sees profits distributed to shareholders as capital, therefore attracting a 20 per cent tax rate for higher rate taxpayers, or 10 per cent for those able to claim Entrepreneur’s Relief or basic rate taxpayers. Changes to Entrepreneur’s Relief could affect the tax implications of an MVL, which will impact any business owner considering exiting ahead or after the Budget.

In the latest developments on changes to Entrepreneur’s Relief, the Government has confirmed those who accidentally breach the law in the first year of its implementation will not face penalties, although penalties will be applied for deliberate non-compliance. While this indicates a lighter touch in terms of rollout, contractors and businesses still stand to be impacted in the long run, with implications for any business or entrepreneur looking to exit in the next year.