The Chancellor George Osborne missed an opportunity to use business rates to help small and medium-sized businesses, including indoor play operators, in the UK, says Mark Johnson of equipment finance specialist Johnson Reed.
The Chancellor had been under increasing pressure from within the Cabinet to extend business rate relief beyond next year, but confirmed during his Budget 2013 statement that April’s anticipated 2.6% business rate increase will go ahead as planned. This will add another £175 million on top of the £500 million of rates rises that UK businesses have had to cope with over the last couple of years.
“The silence on business rates, which many small firms were hoping to see at the very least frozen, and the end of small business rate relief next March is no doubt a bitter blow to many soft play operators. If the government is genuinely seeking to revive British commerce and support small and medium sized businesses, then this Budget was a missed opportunity. The Chancellor had the chance to introduce a system that produces fairer and more affordable rate increases, as well as bringing into line a truer valuation of rates to reflect the rents being charged by landlords now”
says Johnson.
Until March 31, 2014, small firms can take advantage of 100% business rate relief for properties with a rateable value of £6,000 or less. The rate relief gradually decreases on a sliding scale from 100 to zero per cent for properties with a rateable value between £6,001 and £12,000.
“There was no change of heart on the government’s delay on a rates revaluation until 2017. Industry figureheads have campaigned heavily to encourage a national review of rateable values to be brought forward, particularly as bills are currently reflected by values of April 2008, but the government has failed to act.
Even if the government’s proposals of delaying any rate revaluation until 2017, is to provide some degree of certainty to companies in the next few years, the timeframe of reducing the overall deficit and the eventual prosperity of the economy remains unclear.”
Johnson also picked out the other main Budget tax proposals that will impact on Indoor Play readers.
“To be frank, not a lot has changed following this Budget, but there were a few small crumbs of comfort for the industry and it is always important to be aware of what is coming down the track.”
The following five announcements will undoubtedly have some impact on you, your business and your employees in the months and years to come.
Enterprise Management Incentives (EMI)
EMI schemes are share option schemes which allow small and medium-sized businesses to grant tax-advantaged share options to employees. In broad terms, a gain made by an employee on the exercise of an option and subsequent sale of shares is subject to capital gains tax (CGT) rather than income tax. The CGT rate however is often 28% and thus can negate much of the tax advantage of EMI schemes.
Legislation will therefore be introduced to extend the 10% CGT rate given to gains qualifying for Entrepreneurs’ Relief to EMI shares by removing the 5% minimum shareholding requirement required to obtain Entrepreneurs’ Relief.
The options will need to have been granted to the employee at least 12 months before the disposal of shares obtained on the exercise of the option.
Generally, the new rules apply to disposals of shares on or after 6 April 2013.
Corporation Tax Rates
The main rate of corporation tax, applicable to companies with profits in excess of £300k, is 23% from April 1, 2013. The Chancellor announced in December that the rate from April 1, 2014, which was planned to be 22%, will be reduced by an additional 1% to 21% and under these announcements just 20% from April 1, 2015.
Unfortunate the Chancellor has not helped the majority of the SME, play and leisure sector where small company tax, under £300k, remains unchanged at 20% for the foreseeable future.
New scheme for tax-free childcare
New tax incentives for childcare have been announced. To be eligible, families will have to have all parents in work, with each earning less than £150,000 a year and not already receiving support through Tax Credits or Universal Credit.
The relief will be 20% of the costs of childcare up to a total of childcare costs of £6,000 per child per year. The scheme will therefore be worth a maximum of £1,200 per child.
The scheme will be phased in from autumn 2015. For the first year of operation, all children under five will be eligible and the scheme will build up over time to include children under 12.
The current system of employer supported childcare will continue to be available for current members if they wish to remain in it or they can switch to the new scheme. Employer supported childcare will continue to be open to new joiners until the new scheme is available.
The government will consult on the detail of the new scheme but it is expected that parents will be able to open an online voucher account with a voucher provider and have their payments topped up by the Government. Parents will be able to use the vouchers for any Ofsted regulated childcare in England and the equivalent bodies in Scotland, Wales and Northern Ireland.
The existing system of employer supported childcare is offered by less than 5% of employers and used by around 450,000 families. It provides an income tax and National Insurance Contributions (NIC) relief. The maximum relief is an exemption from income tax and NIC on £55 a week. This relief is per employee so if both parents are in employment the maximum exemption is £110 per week. In the new scheme the limit is per child.
The personal allowance for 2013/14
For those aged under 65 the personal allowance will be increased from £8,105 to £9,440. This increase is part of the plan of the Coalition Government to ultimately raise the allowance to £10,000 which will be achieved from 2014/15.
The reduction in the personal allowance for those with ‘adjusted net income’ over £100,000 will continue. The reduction is £1 for every £2 of income above £100,000. So, for 2012/13, there is no allowance when adjusted net income exceeds £116,210. For 2013/14 the allowance ceases when adjusted net income exceeds £118,880.
From 2013/14 the higher age related personal allowances will not be increased and their availability will be restricted to people who were born before April 6, 1948.
Seed Enterprise Investment Scheme – reinvestment relief
The Seed Enterprise Investment Scheme (SEIS) was introduced in 2012 as a way of encouraging equity investment in small companies. As an extra incentive, an investor who re-invested a capital gain of up to £100,000 made in 2012/13 in SEIS shares in that year is able to claim CGT exemption on that gain. The exemption can be removed retrospectively if the SEIS shares cease to meet qualifying conditions.
It is now proposed to extend this re-investment relief for gains made in the tax year 2013/14. Reinvestment relief of 50% of the matched gain will be available where the proceeds are invested in SEIS shares in either 2013/14 or 2014/15.
So it’s very much the same as, well you didn’t expect life changing ‘good’ surprises did you!! For those operators with day nurseries you will be pleased to see this benefit introduced, but with the scheme starting in 2015 we have a long way to go. On a personal level we can all be grateful they have cancelled the proposed fuel duty increase of 1.98p per litre.
In summary, I think small business across the play and leisure sector can breathe a sigh of relief at this year’s announcements, let’s celebrate with a penny off a pint…!!
