Yesterday George Osbourne presented a much anticipated 2016 Budget. Declared as ‘a budget for the next generation’, large and small businesses were crossing their fingers waiting to see how they fared. While a lot of focus lay on education and the inevitable sugar tax, which we’re sure put a smile on Jamie Oliver’s face, what changes were made that affect tech startups? Here’s what we’ve taken away.
A good news day for investors
It’s a great moment for investors as Entrepreneurs’ Relief (ER) sees a welcoming change. A huge extension will be given to external investors who do not qualify for SEIS and/or EIS in order to attract new capital in companies. This means the 10% rate of Capital Gains Tax will be charged on sale of shares in non-listed companies i.e. for startups & scaleups.
This is not only great news for investors making new investments, but also for startups looking to raise new funds, as the new relief comes as an extra incentive for investors. Happy days!
However, being HMRC, things are never that straightforward, there are conditions and in order to qualify for relief, a share must:
- Be issued after 17 March 2016, so it’s only for new investments and new money in. #noswapping
- Have been subscribed for by the person making the disposal
- Be in an unlisted trading company, or unlisted holding company of a trading group
- Have been held continuously for a period of three years before disposal, the qualifying period starts on 6 April 2016
Therefore, this means there is a downside in that existing investments do not qualify, though the headline Capital Gains rate is dropping to 20% from 6 April 2016!
Crackdown on VAT avoidance for online marketplaces
In a bid to level the playing field for UK companies, the chancellor has also announced measures to ensure all businesses selling goods in the UK on online marketplaces pay VAT.
The new rules will mean overseas companies having to appoint a UK established VAT representative to ensure compliance & HMRC to have the discretion to direct them. Importantly, for any online marketplace, HMRC will have the power to make them jointly liable for any unpaid VAT.
This is a real issue any marketplace connecting oversees businesses into the UK will need to take seriously. Call us to chat over if you think you may be effected.
Small businesses come out on top
Small businesses finally get what they’ve been asking for as the chancellor announced business rates will be dropped for 630,000 businesses from next year. Whoop whoop!!
The rates for small businesses, which up until now have been way beyond their contribution in corporation tax, have long been a problem for small, local and startup companies. However, this new reduction will save businesses £7bn per year. The brunt of the bill will now be picked up by big corporations – Sorry guys!
This will make the move out of a co-working space more manageable for tech startups.
Capital Gains Tax & Corporation Tax
In more good news, there has been a significant drop in Capital Gains Tax rates! CGT is currently charged at 18% for basic rate taxpayers, and 28% for higher rate taxpayers.
These rates are reducing to 10% for basic rate taxpayers and 20% for higher rate so even though existing investors won’t benefit from ER, they will gain from reduced CGT rates after April.
Corporation tax also gets a cut and will be dropping to 17% from 2020, that’s the lowest in G20! This is going to benefit millions of companies when it takes effect and shows promising progress from the previous promise of 18% from 2020 made in the Summer 2015 budget.
As George said #openforbusiness. All in, a thumbs up from us!