SME owners urged to act now to lock in asset gains

Had I placed a bet this time last year that we would be in the throes of a pandemic, the recently elected conservative government would have embarked on the biggest spending spree ever seen, and a significant part of UK Plc would fall to its knees, I could have expected some pretty impressive odds. But I did not, and although there are always pessimists out there, few at the time thought such developments were imminent.

Lockdown

Clearly this year’s events have had profound consequences at all levels of the corporate landscape. The imposed national lockdown hit all consumer facing industries hard. Whether you are a wedding venue or a nursery, unless you have customers walking through your front door paying for your services you do not have a viable business.All of this had a knock-on effect on corporate transactional activity, which is traditionally a good indicator of movements in the wider economy. Not only did it harm company valuations but with no end in sight confidence amongst owner managers took a hit.

Resilience 

That said, in recent months the SME sector has shown itself to be resilient. Those taking a longer-term approach have been quick to see depressed valuations as a good buying opportunity, particularly to acquire competitive businesses, or to offer a readymade channel into new markets. But, on the sell side, such buoyancy could all be short lived. The date for the Autumn Statement has yet to be confirmed and there is growing speculation that the cash strapped Treasury will take the opportunity to implement some fairly significant tax rises.

Tax

Earlier this year the Office of Tax Simplification was asked to review capital gains taxes. The current rate is 20%, although if you are fortunate to qualify for Entrepreneurs relief, then this drops to a globally competitive 10%. When compared to income tax at up to 45% the narrative for raising CGT seems politically appealing.With this in mind the strategy amongst SME business owners must be one of accelerating any planned disposals, particularly of business assets, to “lock in” the current CGT rates. We are well placed to assist with this process and our corporate department is used to dealing with such matters to a tight timetable. If this is a prospect, then you should not delay in contacting us.
But there is also a counter argument. Some evidence exists that if you cut the tax rate (yes, you did read that correctly), tax revenues actually increase because reduced taxation stimulates economic activity. It would be a brave Chancellor who introduces such a radical measure, but such thinking could be just the approach that is needed at a time when the economy is suffering.

The odds overwhelmingly favour tax hikes, but it might just be worth a small punt on something more radical to save wondering “what if” in twelve months’ time.

In summary

Whilst no-one can predict what will come next, the commercial team at Pinney Talfourd are keeping abreast of the changes affecting SMEs and are available to discuss your business’ needs by phone, email, video meeting or in person (with social distancing being observed).

More information

If you require any further information or wish to discuss your matter with us, please do not hesitate to contact Edward Garston by email or on 01277 246833.

This article was written by Edward Garston, Partner in the Company Commercial team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of September 2020.