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South West tax expert warns that new Government initiatives will hit owner-managed businesses

“Why has the Government done a U-turn on its enterprise culture”? asks Bishop Fleming’s tax chief

Thousands of South West owner-managed businesses could become victims of two planned tax changes, resulting from political “knee-jerk” responses to news headlines.
This is the verdict of Bishop Fleming, the accountancy firm with the widest spread of offices throughout the South West, championing the region’s owner-managed businesses.
According to Andrew Browne, Senior Tax Partner at Bishop Fleming:  “Alistair Darling has just announced plans to change the way companies and partnerships are taxed, having lost a recent milestone court case”, said Mr Browne.
Having lost the much-publicised Arctic Systems court case, in which the husband and wife owners of that business were judged to have been within the law in allocating income according to their shareholding rather than hours worked in the business, the Government now wants to change the law.

HMRC has issued a consultation document aimed at making it illegal for husbands and wives to decide how to allocate the income from their companies or partnerships.  “These changes will significantly increase the tax burden (and administration costs) of the owner managed business”, said Mr Browne.

“The proposed changes are wider than anyone could have anticipated and will affect all sizes however small or large.  In an outrageous move they are even stopping businesses being passed down generations”, he added.

“This follows the Chancellor’s controversial plan to change Capital Gains Tax, aimed at capturing headlines from newspapers that don’t like the low-tax-paying global private equity investors. That plan actually poses a much bigger threat to this region’s crucial owner-managed businesses, and the thousands of their employees who have invested in their companies’ shares”, said Mr Browne.

For privately-owned businesses, the proposed CGT change will see an 80% increase in tax for owners planning to retire – or to invest more capital into their business.  For employees with “share-save” investments, their tax liabilities will see similar rises.

“This is a blow to owner-managers, and reduces the investment they will put into their business.  To be frank, that tax increase means that they would do better by spending their money on an overseas holiday-home than on investment in their business”, said Mr Browne.

“Gordon Brown has repeatedly promised to back the UK as an ‘enterprise culture’:  these two new tax plans are a complete U-turn on that promise.  They seem to be knee-jerk responses to news headlines, rather than considered measures to boost enterprise”, said Andrew Browne.