City Comment: Ongoing implications of Osborne’s Budget for the recruitment sector
27 April 2012
The 2012 Budget has rarely left the headlines since it was first announced. For recruitment businesses there were a number of announcements that should be noted and acted on when the time is right.
Fri, 27 Apr 2012 | by Carl Swansbury, director, Ryecroft Glenton Corporate Finance
The 2012 Budget has rarely left the headlines since it was first announced. For recruitment businesses there were a number of announcements that should be noted and acted on when the time is right.
For business owners who give bonuses to consultants or staff it may be wise to push back the date to next April, when the 50p income tax rate will come down to 45p for income over £150,000.Staffing companies that choose to offer enterprise management incentives (EMI) share options to some staff will note new proposals to extend Entrepreneur’s Relief to shares acquired through EMI options exercised after 6 April 2012. The amount of EMI options which could be held by an employee was increased from £120,000 to £250,000.
Entrepreneur’s Relief means that shareholders can sell their shares at a capital gains tax rate of only 10% for gains of up to £10m – a great rate when compared to the 28% that normally applies to capital gains tax.
However, be aware that Entrepreneur’s Relief has to be applied for, and you have to fulfil requirements to be eligible. You have to have held 5% of the company’s shares and have been an employee of the company for the 12 months immediately prior to the sale. The 10% capital gains tax rate is historically low so if you qualify, it’s an excellent benefit.
The main rate of corporation tax is being cut again, reducing to 24% from April 2012 and to 22% by April 2014. The small companies’ rate remains at 20%. This adds an attractive incentive to those businesses that are not incorporated to become limited companies. The gap between the income tax rate of 45% and the corporation tax rate of 24% is huge, and it may well widen even further in the future.
For one-person companies, the taxman is poised to crack down on those who set themselves up as 'companies' to avoid paying income tax, but are in fact employees working for only one employer. High profile cases of ‘personal service companies’ are already in the press – including a potential Mayor of London.
This area, known as IR35, has to date been problematic for HMRC and it has lost the majority of court cases. Rigorous new rules will, however, boost specialist compliance teams to tackle avoidance of the employment income rules and simplify the way IR35 is administered. This may mean that recruiters face a surge of new talent as some ‘one-person companies’ admit defeat and seek a return to a more straightforward role as an employee.
If you are in doubt about IR35, Entrepreneurs Relief or EMI seek professional advice from experienced tax planning accountants.
Finally, for all those who cannot be parted from their smartphones, some good news from the budget. Smartphones will now be assessed as mobile phones and become a tax-free benefit. Tweet the news immediately!
Carl Swansbury, director, Ryecroft Glenton Corporate Finance
The 2012 Budget has rarely left the headlines since it was first announced. For recruitment businesses there were a number of announcements that should be noted and acted on when the time is right.
For business owners who give bonuses to consultants or staff it may be wise to push back the date to next April, when the 50p income tax rate will come down to 45p for income over £150,000.Staffing companies that choose to offer enterprise management incentives (EMI) share options to some staff will note new proposals to extend Entrepreneur’s Relief to shares acquired through EMI options exercised after 6 April 2012. The amount of EMI options which could be held by an employee was increased from £120,000 to £250,000.
Entrepreneur’s Relief means that shareholders can sell their shares at a capital gains tax rate of only 10% for gains of up to £10m – a great rate when compared to the 28% that normally applies to capital gains tax.
However, be aware that Entrepreneur’s Relief has to be applied for, and you have to fulfil requirements to be eligible. You have to have held 5% of the company’s shares and have been an employee of the company for the 12 months immediately prior to the sale. The 10% capital gains tax rate is historically low so if you qualify, it’s an excellent benefit.
The main rate of corporation tax is being cut again, reducing to 24% from April 2012 and to 22% by April 2014. The small companies’ rate remains at 20%. This adds an attractive incentive to those businesses that are not incorporated to become limited companies. The gap between the income tax rate of 45% and the corporation tax rate of 24% is huge, and it may well widen even further in the future.
For one-person companies, the taxman is poised to crack down on those who set themselves up as 'companies' to avoid paying income tax, but are in fact employees working for only one employer. High profile cases of ‘personal service companies’ are already in the press – including a potential Mayor of London.
This area, known as IR35, has to date been problematic for HMRC and it has lost the majority of court cases. Rigorous new rules will, however, boost specialist compliance teams to tackle avoidance of the employment income rules and simplify the way IR35 is administered. This may mean that recruiters face a surge of new talent as some ‘one-person companies’ admit defeat and seek a return to a more straightforward role as an employee.
If you are in doubt about IR35, Entrepreneurs Relief or EMI seek professional advice from experienced tax planning accountants.
Finally, for all those who cannot be parted from their smartphones, some good news from the budget. Smartphones will now be assessed as mobile phones and become a tax-free benefit. Tweet the news immediately!
Carl Swansbury, director, Ryecroft Glenton Corporate Finance
