Tax considerations for entrepreneurs this year

Spring Budget 2023 was, on balance, a quiet affair for entrepreneurial tax matters. This provides a short period of tax certainty for entrepreneurs to review their tax strategies and ensure their business is in the best possible position for the future.

However, a general election is likely next year, which will probably bring with it significant changes in public policy, not least tax.

Below we offer tax insights on a few different business scenarios.

Are you considering selling your business?

Given the contrast between the capital gains tax (CGT) main rate of 20% and the income tax top rate of 45%, the question of whether the two rates should be more closely aligned has often been under the spotlight. With no announcements at Spring Budget 2023, further short term-certainty has been provided, however, this greater certainty over the taxation of capital gains doesn't extend to the medium term. This is an area the main political parties have all considered in recent years, and any future government looking to balance spending commitments and revenue raising measures could revisit.

If you're looking to sell your business in the short to medium term, with greater certainty over the rate of CGT that will be paid, key considerations may involve accelerating a sale, completing an internal sale or de-risking via a partial exit event.

Have you sold your business?

On the sale of a business there's likely to be a realisation of capital gains that could be or have already been deferred. If you're receiving shares and/or loan notes you should consider the claims and elections available to you - specifically, whether it may be beneficial to disapply the automatic deferral of CGT and bring those gains into charge at current rates. Although this might mean an earlier tax charge, the cash flow disadvantage needs to be carefully considered against the possibility of these gains being taxable at higher rates in the future.

Are you passing your business on to the next generation?

For many years, tax reliefs have supported entrepreneurs passing on trading company shares as part of their succession strategy. There's a window to take advantage of the existing tax regime and reliefs with greater certainty, but also to ensure that the current ownership structure of a privately held business is ‘future fit’ for both commercial and tax purposes. Succession can, of course, take many forms: 

• The family-held company passing to children
• A management buy-out, allowing key management to take the business forward
• The introduction of an investor to bring new capital and energy into the business
• A full exit from the business to a third party - enabling retirement 
• The transfer of the business to employee ownership, for example via an Employee Ownership Trust

For more insight and guidance, get in touch with Nick Parkinson.