Duncan Lewis

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The proposed tax relief cap would send SME entrepreneurs to bankruptcy says accountant

Date: (17 July 2012)    |    

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The accountant firm PKF has warned that the government plans to introduce cap on income tax relief if becomes a law would see small and medium sized enterprises pushed bankruptcy.
A consultation by the government was published on the 13 July and it is seeking views on how to implement its proposals on capping of tax relief in the Finance Bill 2012.
This relief the paper says would be applicable to those earnings whose income is greater than £50,000 per year or 25 earning categories which are not currently capped and could be offset against general income.
The rules will take effect from the 2013-2014 financial 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 2012-2013 or earlier tax years.
Losses made against shares, including EIS shares, are currently uncapped and so will qualify under the definition and be subject to the new cap.
Lisa Macpherson, national director of tax at PKF, believes that the idea is badly conceived in so much as to cause pain for entrepreneurs who could in future get smaller refund on their losses or have to wait much longer to get tax relief.
She said that it would threaten the survival of many small and medium enterprises at a time they were already deep in trouble and new entrepreneurs would think twice before setting up new businesses in the future.
She added that companies would likely be folded and the entrepreneurs would be left bankrupt if the proposals are implemented.
Ms Macpherson pointed out that 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.
She said the owners of micro-businesses were 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.
She suggested that if the government really had to press ahead with these proposals, it should at least consider raising the cap to somewhere near £100,000 per annum so that fewer entrepreneurs were adversely affected by the proposals.