A members Voluntary Liquidation enables shareholders to receive distributions as capital rather than dividend income without limit, thus enabling them to take advantage of Entrepreneurs’ relief.

Which brings onto the question of what is Entrepreneurs Relief?
Entrepreneurs Relief (“ER”) is a valuable tax relief that reduces capital gains tax payable to 10% (instead of 20%) on the disposal of qualifying assets i.e. shares providing certain qualifying conditions are met
For more information on the terms of qualifying for Entrepreneurs Relief, please see HM Revenue and Customs Entrepreneurs’ Relief (Self Assessment helpsheet)

Entrepreneurs Relief and the Budget?
Entrepreneurs Relief reduces the tax on disposal of qualifying assets to 10%, it has been criticised as being excessively generous to people who are already rich, and as ineffective in incentivising entrepreneurs to start businesses.
It was much anticipated that the relief would be abolished completely as there has been speculation for a number of years, but the Chancellor decided against the abolishing it altogether and reduced the lifetime amount of eligible chargeable gains from £10 million to £1 million with effect from 11 March 2020. The £1m limit announced brings the relief back down to its original level when it was first introduced in 2008
This may impact on the net cash available to business owners who sell shares in their trading company or sell part of their business.

• The effect will be to increase the tax on a £10 million gain from £1 million to £1.9 million.
• Whereas for many with under £1 million of lifetime gains the change will have no impact.

The reduction in the lifetime limit came with the introduction of two anti-forestalling measures to counteract attempts to bank the £10m lifetime limit before the change.  i.e. Where a contract was signed before 11 March but the transaction had not been completed, a claim for the higher amount of ER will have to be justified by the taxpayer on the basis that the disposal was not made to obtain tax relief. Advice should be sort on individual  specific circumstances where contracts have been exchanged before 11 March, but have not yet completed.
This should not be confused with ‘Investors Relief’ which is for external investors in qualifying trading businesses, where there is no charge to the £10 million limit for this relief.

Considerations

• An MVL still allows for distributions to be that of “capital” rather than “income” attracting a lower tax rate of 20% under capital gain tax, rather than 40% for higher rate tax earners under income tax.
• Currently a £1m limit is still available under Entrepreneurs Relief, reducing tax down to 10%
•  It is widely expected that Entrepreneurs’ Relief will be abolished fully in the near future, but advice should be taken by anyone considering utilising the remaining lifetime limit or considering an MVL.

The 2020 Budget saw the Chancellor unveil an ‘historic’ spending rise with some eye-watering sums, covering both the immediate challenge of the corona virus and the threat of recession, identified by the Office for Budget Responsibility.
Funded through £130 billion of extra borrowing rather than tax rises, though revenue raised from Corporation tax and Entrepreneurs’ Relief, and deficits becoming permanent rather than being phased out.

BUDGET FOR THE CORONAVIRUS
The measures complemented the emergency rate cut from the Bank of England and provide financial bridge during the outbreak, these measure include;

• Statutory Sick Pay from the first day off work for all those advised to self-isolate. This paid by the employer, but businesses with less than 250 employees can reclaim the cost for 14 days of isolation, even if they have not presented with symptoms.
• Self employed workers who are not eligible will be able to claim Employment and Support Allowance (ESA) from day one of “illness” worth £73.10 per week (£57.90 for under 25s)
• Firms with less than 250 staff will be refunded for sick pay payments for two weeks

In addition, funding has been made available to support businesses.

• Small firms will be able to access Business Interruption Loans of up to £1.2m
• Business Rates in England will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000; and
• Business Rates Discount  for pubs to rise from £1,000 to £5,000 per year
• Councils will also have access to hardship fund to help vulnerable people in their area.

As well as support for the NHS.

OTHER KEY MEASURES
For other key budget measures and their implications of these, See Our News section

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-  Budget 2020

BUDGET FOR CORONAVIRUS
The measures complemented the emergency rate cut from the Bank of England and provide financial bridge during the outbreak, these measure include;

• Statutory Sick Pay from the first day off work for all those advised to self-isolate. This paid by the employer, but businesses with less than 250 employees can reclaim the cost for 14 days of isolation, even if they have not presented with symptoms.
• Self employed workers who are not eligible will be able to claim Employment and Support Allowance (ESA) from day one of “illness” worth £73.10 per week (£57.90 for under 25s)
• Firms with less than 250 staff will be refunded for sick pay payments for two weeks

In addition, funding has been made available to support businesses.

• Small firms will be able to access Business Interruption Loans of up to £1.2m
• Business Rates in England will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000; and
• Business Rates Discount for pubs to rise from £1,000 to £5,000 per year
• Councils will also have access to hardship fund to help vulnerable people in their area.

As well as support for the NHS.

OTHER KEY BUDGET MEASURES
Most of the extra spending announced is on day-today departmental expenditure covering nurses, policemen etc.

We summarise the main points for business owners below.

National Insurance – current threshold sees employees and self-employed paying contributions once they earn £166 a week, equivalent to an annual salary of £8,632 a year. From April, you start paying when earning £9,500.
According to the Institute for Fiscal Studies this means 500,000 people will no longer have to pay tax, and those paying, will up to £85 per year better off.

Employment Allowance – will increase from £2,000 to £4,000 in April. This means eligible businesses and charities will be able to claim a greater reduction on their Secondary Class 1 National Insurance Contributions liability.

Entrepreneurs' Relief – Was not fully abolished as widely predicted, and instead has been delayed to November. However, the lifetime allowance was reduced from £10 million to £1 million for qualifying disposals mad on or after 11 March 2020. There are special provisions for transactions and elections designed to bank the £10 million lifetime limit prior to the change.

Corporation Tax – no change as the rate remained at 19%

Pension Tax for Higher Earners - Threshold for income will be increased from £150,000 a year to £200,000 (including salary and the value of pensions earned).
 
Other budget points include

• Freeze on fuel duty
• Freeze on alcoholic duty
• 5% VAT on women’s sanitary products to be scrapped from January
• VAT on eBooks and digital newspapers to be scrapped from December
• Plastic packaging tax to come into force from April 2022
• Subsidies for fuel used in off road vehicles, known as red diesel, except for farmers and rail operators
• Those working from home, who claim £4 per week off their income tax bill, will be able to claim £6 from April.
• The allowance for junior ISAs (Individual Savings Accounts) and Child Trust Funds will be increased from £4,368 to £9,000 in April
• Stamp duty surcharge for foreign buyers of properties in England and Northern Ireland to be introduced from April 2021 levied at 2%
• Leaseholders will be able to access grants to safely remove unsafe cladding from flats
• As well as a host of funding packages for research, the environment, flooding and more