.png)
.png)
Business people on modest incomes are under threat from the government’s proposed cap on income tax relief, the Chartered Institute of Taxation (CIOT) has warned.
The limit of the higher of 25% of income or £50,000 – set to take effect from April next year – is aimed at high earners but will also hit those in businesses with modest earnings, leading to them being taxed on more than they actually receive, according to the CIOT.
The professional body’s president, Patrick Stevens, said the current framework of the measure will create unintended consequences where a taxpayer’s business interests are fragmented for commercial or regulatory purposes: a farmer who has diversified business activities to remain self-sufficient, for example.
“Currently, these are effectively aggregated, and the person is taxed on the net income from all activities. The cap will prevent this happening, taxing many in business on more than they earn,” said Stevens.
The CIOT, which has set out its concerns in a response to the government’s consultation on the proposal for the limit, fears those hardest hit will be members of professional services group of firms who are required on a global basis to take a share of worldwide losses and profits.
The organisation’s key recommendation is that business profits and losses, including relief for interest on a loan, should be able to be offset against each other before considering if the cap on income tax relief applies.
“In its current form, the measure will be seen by many as anti-business. Restricting the ability to offset genuine business losses and interest relief could suppress UK entrepreneurship,” said Stevens.
He added, “A taxpayer who is prepared to risk his or her life savings in an enterprise, or a series of enterprises in parallel, ought to be able to net off profits and losses and only pay tax on the net amount.”
