Each year Business Link Magazine invites a select panel of the region’s business leaders to offer up their predictions for the year ahead. It has become something of a tradition, given that we’ve been doing this now for over 30 years. And, while none of us possess a crystal ball, it is uncanny how accurate some of these forecasts have been over the years.
Here, we catch up with Mark Pashley, Tax Director at Grant Thornton’s East Midlands office in Leicester, who makes his predictions for the year ahead:
Timely and relevant tax changes for 2018 are:
Corporate indexation relief
The Indexation Allowance, which provides tax relief for corporate capital gains, will be frozen from January 2018 to bring the corporate tax system ‘into line’ with capital gains tax for individuals.
The allowance allows for the effect of inflation when calculating the chargeable gains of companies. The move is likely to affect a number of buy to let landlords who have incorporated their rental property businesses in response to previous tax changes to stamp duty on second homes, and the gradual withdrawal of tax relief on mortgage interest costs.
R&D tax credits
Research and development tax credits were introduced a number of years ago to encourage innovation and enterprise within the UK economy. The relief aimed at Small and Medium Sized Enterprises (SMEs) have been generously increased in recent years, and this time it is the turn of the larger companies (- those with more than 500 employees and larger annual turnovers and balance sheets – to benefit. From January 2018, the tax credit for qualifying expenditure will increase from 11% to 12%.
Making Tax Digital
There has been very little media coverage of the Government’s Making Tax Digital (MTD) strategy, but it is going ahead for VAT accounting in 2019. Whilst this may seem some time off, there are requirements that will change the way that businesses will submit their VAT returns, including the ability to file the return straight from accounting software and spreadsheets. Many businesses submit their returns to HMRC via a template on the filing portal and this facility will be removed for the majority of taxpayers, so this is becoming a pressing issue to address in early 2018.
Enterprise Investment Schemes (EIS)
The EIS investment limit for individuals will be doubled from £1m to £2m from April 2018 for so called Knowledge Intensive Companies, thereby potentially resulting in a £600,000 tax refund for high net income taxpayers who invest in qualifying companies. At the same time, the rules are being tightened to prevent abuse of the relief by excluding cash-rich safe investments from the regime.
The headline points local businesses should have in mind from a financial reporting point of view are: –
IFRS 15 Revenue from Contracts with Customers
The new standard is effective for accounting periods beginning 1 January 2018 and may have a significant impact on companies who prepare their accounts under IFRS as it covers revenue from all contracts with customers, except from leases, financial instruments and insurance contracts. Businesses should already have established a comprehensive framework for determining when and how much revenue to recognise, but although there are a number of transition choices, the new system could well have a significant impact financially and operationally on businesses, along the lines of those already disclosed this year by several big plc’s.
This carries with it a number of key changes coming out of the Triennial review of FRS 102 which in part is aimed at making FRS 102 both more cost effective to apply and easier to use, without the loss of useful information. These include the reduced number of intangible assets to be separated from goodwill, the classification of financial institutions and instruments, and the classification of investment property rented to a group company as either a cost or at a fair value. This applies for accounting periods beginning 1 January 2019, however, with the date of transition being 1 January 2018, businesses need to be considering the impact now.
FRC (Financial Reporting Council) Communications
The new rules will have an impact on all businesses as they are now required to address best practice, focus and monitoring of key areas of the business’ operations.
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