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Our budget views in blue: Income tax reliefs (e.g. sideways loss relief)

| 22nd March 2012

Sole trade losses and gift aid

These are being capped. Before, if a sole trader started a business and made opening year losses or other trading losses for example, he could relieve these against other income (sideways loss relief). This is now being restricted to the greater of 25% of income or £50,000. The same rules apply to gift aid donations (although the government will review the effect on charities).

This is completely out of sync with the government’s stated objectives. The law before encouraged entrepreneurs (especially those in employment) to make a commitment to the business knowing that they would at least get tax relief. Now this is being eroded.

The gift aid point marks a clear change in direction.

 

EIS and VCT

The major change is that you can invest more (£500k to £1m for EIS investment and no lower limit) and it is easier for companies to qualify (max. 50 employees before now 250)

More interestingly, it is now easier for someone to invest in his own company – loan capital does not “count” when deciding if you are connected (you cannot invest in a connected company broadly).

More interestingly still seed EIS schemes (first £100k of investment in each company with each company eligible for £150k in total) offer 50% tax back (30% for normal EIS)

Without a doubt this is very encouraging and ought to stimulate business. What we cannot fathom is why this is in place but the income tax relief on sole trade losses is being restricted. Are the government in favour of start-up businesses or not?