Taxing times for business
The ink was barely dry on the coalition deal between the Conservatives and the Liberal Democrats when news of the first tax rise was unveiled.
The new Government wants to more than double capital gains tax (CGT) from its current 18 per cent to rates similar to income tax.
So it could mean that the sale of assets such as a second home or shares could be subject to a tax rate of up to 50 per cent – the new top level for higher earners.
How this applies to businesses remains unclear. The coalition agreement says it will give “generous exemptions to entrepreneurial business activities.” But quite what that means at this stage is uncertain.
Currently investments in some start-up companies are exempt from CGT, while Entrepreneurs’ Relief keeps the rate to 10 per cent for those with a 5 per cent stake in a company or more.
Now there are fears that a higher rate of tax could stifle entrepreneurship and business investment at a time when the economy is just starting to recover.
Andrew Bullard, head of business at Cashflow UK, said: “The last thing businesses want at this delicate stage for the economy is to be hit by higher taxes.
“Companies need every penny at the minute and to be suddenly faced with higher taxes means they will be forced to make savings elsewhere.
“And that could cost more jobs and even tip us back into recession which would be a nightmare scenario for the new Government.”
Businesses urgently need clarity on the promised “generous exemptions” to see how they differ from the current regime. An emergency budget will take place on June 22 so the situation will hopefully become clear, but until then many entrepreneurs and investors are selling up their assets while the rate remains at 18 per cent.
Mr Bullard added: “Cashing in now could cause as much instability in the economy as raising taxes.
“We need some clear indications of the Government’s intentions on CGT as soon as possible so businesses owners can plan for the future.”
