However, it is fair to say that the tax horizon doesn’t necessarily look like a happy ever after either. With the pre-reported National Insurance hike coming into effect for both employees and employers in a month’s time, and a 6% increase in the corporation tax rate a year later (which is an effective 31.5% increase in the tax burden on business), few are expecting the tax environment to become any more benign over the next two years. In fact, many would argue that the combined effect of freezing tax allowances and increasing corporation tax and National Insurance rates feels like the imposition of sanctions on UK business every bit as severe as those imposed on Russia. The fact that this comes on top of business disruption caused by Brexit, the pandemic and spiralling inflation adds insult to injury.
But what is business doing about this deteriorating fiscal environment? Well, a little like the West’s response to the crisis in Ukraine, there are a number of solutions that businesses and business owners can consider to improve their tax positions. These range from the relatively straightforward, such as taking advantages of tax allowances and reliefs in advance of the tax year end, to the more complex or permanent.
Before the March 2021 Budget, we saw a significant increase in deals activity as business owners sought to capitalise on their investment and cash out while the going was good. While the predicted rise in CGT rates has not yet materialised, the Chancellor recently stopped short of saying CGT was off the hook, and instead hinted that any changes to the tax would be part of a wider review of the tax as a whole, rather than just increasing rates. M&A activity has remained high over the last 18 months, as all daily readers of Insider will be aware, but the timing of this is now being driven by macroeconomic factors rather than tax.
Tax uncertainty means we have seen a significant increase in enquiries relating to global mobility. 25 years ago, some entrepreneurs were willing to move to Belgium for a year in order to avoid paying tax on gains due to a loophole in the Belgium-UK double tax treaty. As someone who believes that chips and mayonnaise were one of the greatest innovations in world cuisine, I can see the attraction of a year in Bruges to save a fortune in tax! The rules permitting 12 months of watching Tintin in return for saving a 40% tax bill were abolished a long time ago and were not missed for as long as the government supported entrepreneurs through the tax system. There was little point in moving abroad to escape a 10% charge on gains and entrepreneurs stayed, typically reinvesting their good fortune in the UK economy. However, with government support for business having largely disappeared, we are now regularly seeing clients who will willingly move out of the UK for not 12 months but six years in order to gain certainty over their tax affairs. Those entrepreneurs are unlikely to be reinvesting in the UK in the medium term and so the UK loses.
Of course, whether you are looking to sell your business and move to Portugal or pay your CGT and remain in the UK, pre-sale planning is vital if you are to achieve your objectives. Even if a sale is not on the cards, cleaning up structures and ensuring all ducks are neatly lined up is rarely a poor choice, and means businesses can leap at opportunities when they do present themselves. Even for a firm like ours, tax isn’t the be all and end all of life, but there is no doubt that managing tax affairs in a commercial fashion will pay dividends for anyone running or selling a business in this time of fiscal uncertainty.
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6 December 2023
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