Whichever party gets elected tomorrow, no new government can avoid the reality that three of their major revenue streams are going to be basic rate income tax, national insurance and VAT.

All main three parties have announced there will be spending cuts, but these will only go some way towards reducing the UK’s massive deficit, so it’s a no-brainer that further tax rises are likely. Already last month, the new 50% top rate of tax has come into effect for incomes over £150,000, with personal allowances for anyone earning over £100,000 already scrapped.

So what might each of the three have in store for us?

LABOUR
PAYE/Tax : Income tax is to remain at current levels. Personal allowances are to be frozen though, meaning tax bills will rise as incomes increase
NI: National Insurance will be increased by 1% from April 2011 to 12%. The threshold at which NICs become payable will be raised so that anyone earning under £20,000 p.a. will not be affected
Capital Gains Tax (CGT) – no announcements on changes to the rate CGT, currently at 18%
VAT: – No proposed change to VAT rates

CONSERVATIVE
PAYE/Tax: No plans to raise income tax rates. The new 50% rate may not be a permanent feature. Transfer of £750 of personal allowances within married couples and civil partnerships will be allowable.
NI:- Will protect middle earners from the 1% NIC rise by increasing contribution thresholds so that individuals earning less than £35,000 will pay no more in cash terms.
CGT: No plans to change CGT rates
VAT: No plans to change VAT rates

LIBERAL DEMOCRATS
PAYE/Tax: Personal allowances to be increased to £10,000 (from £6,475), but basic rate band reduces from £37,400 t o £33,875
NI: Nick agrees with Gordon here – and will support Labour’s proposed changes
CGT: Will tax CGT at income tax rates, also will reduce the annual exemption to £2,000 from £10,100
VAT: No change to VAT rate

Although none of the three are proposing to alter the current VAT rate of 17.5%, many experts predict a rise to at least 20%, which would also be more in line with European VAT rates and, whilst neither Labour nor Conservative say they are going to raise CGT rates, it is widely expected that the gap between the 18% flat rate and the 50% top rate of income tax, will be narrowed in the future.

Watch this space!

Business owners are often reactive when it comes to selling or transitioning their ownership interest. Many are too busy dealing with the ‘here and now’ to prepare for the succession of their business. Whether the goal is to achieve a top price, or to reduce the tax impact, proactive steps, as early 3 to 5 years before the transaction, are critical.

If your ultimate plan is to sell to a third party, the aim should be to increase business worth to maximise the sale value.

However, if you are looking to transfer ownership to a family member, the aim might be to decrease the amount of gift or inheritance tax on the transfer of such ownership interests. If not structured properly, taxes can eat up 50% of the gross sales price. It is important to design and implement a wealth preservation strategy.

The average sale of a business can take up to 2 years to organise properly and only 7 % of businesses offered for sale attract a buyer, mainly due to low-level marketing and an unprofessional approach. In addition, many business owners have unrealistic expectations of the value of their business. Serious buyers are not interested if the business is basically a lifestyle, providing purely an income for the owner.

What steps can be taken now to increase the value in your business?

1. Prepare financial statements – these will add credibility and show growth trends and sustainable earnings.

2. Reduce debt – a large amount of debt increases risk of business failure and default.

3. Build a strong management team – this reduces reliance on one key person, and should improve profitability, by optimising performance of all employees.

4. Focus on increasing cash-flow – cash-generating businesses are attractive to buyers.

5. Review internal controls – strong internal controls will re-assure any potential buyer that the financial statements are reliable and the company’s assets are being utilised properly and appropriately.

6. Get a business valuation – an independent professional’s valuation will assist in justifying your asking price.

The key, as ever, is to plan ahead. If you want to know how we can help you maximise your exit ££££s, give Aileen a call on 07802 331887, or leave a message below.