PKF - Proposed cap on tax reliefs will hurt entrepreneurs

13 July 2012: The Government?s proposals to cap tax reliefs that individuals can claim have already proved controversial with the Chancellor having to back down and exclude gifts to charities from the cap. Now a new consultation document about the tax relief cap published today, Delivering a cap on income tax relief: a technical consultation, spells bad news for entrepreneurs, according to PKF Accountants & business advisers.

The proposals would limit a range of tax reliefs* - including relief on losses claimed against an individual?s other income in the same tax year or total income in an earlier year - to ?50,000 or 25% of general income, whichever is the greater. The rules will take effect from the 2013/14 tax year onwards, but claims on any losses that occur after 6 April 2013 will be subject to the cap ? even where the normal rules allow losses to be carried back and offset against income for 2012/13 or earlier tax years (for example, such a carry back is allowed for losses in the early years of a new business).

Lisa Macpherson, National Director of Tax at PKF, comments: ?This is an incredibly badly conceived idea. It has the potential to cause real pain for entrepreneurs as, in future, they may get a smaller refund on their losses or have to wait much longer to get tax relief.

?The proposals threaten the survival of many SMEs at a time when they are already finding it difficult to keep their heads above water, and may also discourage entrepreneurs from setting up new businesses in the future. I fear that companies will fold and entrepreneurs will be pushed into bankruptcy as a result of these plans.

?It is rather ironic that a Chancellor committed to supporting small businesses is cutting back on tax reliefs - entrepreneurs had previously been given more generous loss relief rules in the early years of the recession to help their businesses through the difficult times.

?No entrepreneur sets out to make losses over the long term but the existing rules recognise that new businesses are especially vulnerable, particularly during a downturn. The owners of micro-businesses are unlikely to be affected because of the ?50,000 limit, but entrepreneurs who make larger losses could easily lose out on tax refunds that could be vital to their financial survival.

?If the Government really must press ahead with these proposals, it must at least consider raising the cap to somewhere north of ?100,000 per annum so that fewer entrepreneurs are adversely affected by the proposals.?

Ends
For further information, please contact:
Andy Konieczko, 020 7065 0537, andrew.konieczko@uk.pkf.com

Notes to Editors:
1. Reliefs to be capped:
? Trade loss relief against general income
? Early trade loss relief ? available to an individual in the first four years of the trade, profession or vocation;
? Post-cessation trade loss relief ? available for qualifying payments or qualifying events within seven years of the permanent cessation of the trade;
? Property loss relief against general income ? available for property business losses arising from capital allowances or agricultural expenses;
? Post-cessation property relief ? available for qualifying payments or qualifying events within seven years of the permanent cessation of the UK property business;
? Employment loss relief ? available in certain circumstances where losses or liabilities arise from employment;
? Former employees? deduction for liabilities ? available for payments made by former employees for which they are entitled to claim a deduction from their general income in the year in which the payment is made;
? Share loss relief ? available for what would otherwise be a capital loss on the disposal (or deemed disposal) of certain qualifying shares;
? Losses on deeply discounted securities ? available only for losses on gilt strips and on listed securities held since at least 26 March 2003;
? Qualifying loan interest ? available for interest paid on certain loans. These include loans to buy an interest in certain types of company, or to buy an interest in a partnership, and loans taken out by personal representatives to pay inheritance tax.

2. PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,400 partners and staff operating in over 20 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm?s web site is www.pkf.co.uk

Source: http://www.pkf.co.uk/pkf/news/press_release/proposed_cap_on_tax_reliefs_will_hurt_entrepreneurs

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