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Entrepreneurs’ Relief changes fail to meet up to the test

During the last Budget, the Government announced new conditions to entrepreneurs’ relief that would take immediate effect to change the definition of a “personal company” for shareholders who claim entrepreneurs’ relief.

By introducing these changes, they hope to restrict shareholders relief to those with a genuine material stake of at least five per cent in a company.

For gains arising from shares, or assets used by the company, the company has to be their “personal company”, which requires them to be an employee or officer of that business or one within the same trading group.

In order to obtain relief shareholders would, therefore, have to meet four conditions:

  • hold five per cent of the ordinary share capital
  • control five per cent of the voting rights
  • have a right to at least five per cent interest in the distributable profits
  • have a right to at least five per cent of the net assets on a winding-up of the company.

However, the last two points are proving difficult to codify into law, due to the fact that they appear to rely on provisions relating to companies, intended to prevent the abuse of corporation tax group relief.

This has resulted in the tests referring back to definitions of a company receiving a distribution from another company, rather than looking at this issue at an individual shareholder level.

The point regarding distributable profits also creates issues as such entitlement, usually in the form of dividends, is not given until a dividend resolution is passed by all the eligible shareholders.

Following these issues, HMRC has tabled an amendment that will create an alternative test for a “personal company” based on the shareholder’s entitlement to proceeds in the event of a hypothetical sale of the whole company.

This will ensure that it will be easier to estimate the value of the whole company on a single day, rather than changing shareholder’s rights and dividend entitlements over the entire qualifying period.

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Payroll sector prepares for key changes in 2019/20

The next 12 months will see a number of new changes to payroll policy that could have an impact on a wide range of businesses.

To give an overview of how businesses could be affected by these changes, below are some of the highlights that employers will need to prepare for.

Private Sector IR35

From April 2020, where an individual is engaged by a medium or large-sized business in the private sector and works through a company, the employer will be responsible for assessing the individual’s employment status under the off-payroll working rules (IR35).

Where the rules apply, the business or agency will be responsible for deducting income tax and National Insurance contributions (NICs) via PAYE and will be required to pay employer NICs.

Businesses will be able to use the Check Employment Status for Tax (CEST) service, which is available to help businesses determine whether the off-payroll working rules apply. These new rules will not affect small businesses.

Postgraduate Loans (PGL)

From April 2019, taxpayers will be required to start repaying PGLs if they meet the threshold of £21,000 (England and Wales only). If they do meet the threshold, a deduction of six per cent will be taken from their wages.

The existing starter checklist provided by the Government will be updated to include a section for PGL. Employees’ P60 forms will also be changed to include a new box for PGL deductions, however, the existing P45 form will remain the same.

Parental Bereavement Leave and Pay

Employers will have to get to grips with a new workplace right to Parental Bereavement Leave and Pay for parents who lose a child under the age of 18.

This new right will include parents who have suffered a stillbirth after 24 weeks of pregnancy.

Those who qualify for the new right, which will commence from 6 April 2020, will be entitled to two weeks of paid Parental Bereavement Leave.

During this period, they will be paid at the statutory flat weekly rate of £145.18 or 90 per cent of average earnings (whichever is lower), if the person has at least 26 weeks continuous service at the date of their child’s death and earnings above the Lower Earnings Limit.

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