With significant changes looking likely to happen in the budget this March that could have a detrimental effect on some business owners, now is the time to be reviewing the future.
One of the most talked about areas of change is that of Capital Gains Tax (CGT). Last summer, the Chancellor requested the Office of Tax Simplification (OTS) to commission a review of CGT, in particular identifying areas where CGT could be simplified and where “the present rules can distort behaviour or do not meet their policy intent.”
The OTS identified relevant areas and then has made suggestions on how this could be fixed. The suggestions are firstly that CGT rates should be more closely aligned with income tax rates, although this could mean a significant increase in many cases. In addition, the OTS suggested that the tax-free allowance be reduced, that there should be CGT on inherited assets, and that CGT reliefs should be re-assessed. This last point could mean either the end of or a significant change to Entrepreneur’s Relief.
Most of us are anticipating reforms to CGT in the budget in March, and such reforms will certainly make entrepreneurs rethink their exit strategy. It may also prompt some business owners to consider accelerating their retirement to exit under the current tax regime.
The changes to IR35 should have come into place earlier, but were delayed due to the pandemic. They are now coming into force on 6 April 2021, and will undoubtedly mean that some individuals will rethink how they currently work.
Last year, Qdos polled 750 contractors to find out what they thought the future would hold for their job prospects in the light of the upcoming IR35 changes. Three quarters of the respondents said “they lacked faith in the ability of their clients to accurately determine how they should be taxed,” and, following this, just under half of those surveyed said they intended to carry on contracting beyond April 2021. Of all those polled, 17% said they would consider taking a permanent contract and become an employee to side-step the reforms, and 18% said they were considering ceasing contracting from April 2021.
It seems clear that the changes are already causing concern, and whilst we won’t know for a few months what the impact will actually be, it is looking likely that any changes to CGT and the incoming IR35 rules will result in business closures to some extent.
For many people, closing down might be the wisest financial option. Whether that’s to find permanent employment elsewhere or to retire, the simplest way to achieve this is through a solvent liquidation. You can find out more about Solvent Liquidations in my previous blog.
It’s not too late to undertake a solvent liquidation and to distribute the cash before the budget to lock in the tax you will pay and to de-risk your situation. BLB Advisory has developed its own work programme that lets us complete solvent liquidations at a very competitive price and still be able to offer this as a one-to-one partner led service. If this is of interest to you, please call Brett Barton on 07484 830607.