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Apr 3, 2012

Cap on tax relief comes as a blow to small businesses

According to a latest news report, advisors have voiced their concerns about a new budget decision that prevents individuals from getting excessive tax relief on their income.

This, they say, can be an obstacle for self-employed Britons, though the move is not directed towards them.

Starting in April 2013, individuals seeking tax claims of over £50,000 in a year will be restricted to either 25 per cent of their income or £50,000, whichever is greater. This cap will not affect the already limited tax reliefs like enterprise investment schemes and pensions. But it will be applicable to open ended relief like loan interest, and gift/charitable donations of shares or land.

After the announcement by Chancellor George Osborne, the Chartered Institute of Taxation said that owners of unincorporated and loss-making businesses would face restrictions when they want to offset commercial losses. 

The general sentiment is that by denying business losses to individuals when the trading environment is genuinely challenging, is taking matters a bit too far. Without any loss relief, small businesses would have to rethink the viability of continuing to trade.

However, the government is yet to provide more details about how genuine loss-making entrepreneurs can get an exclusion from this proposed cap. Professional services advising self-employed individuals are, at the moment, relieved that the proposal is subject to consultation. 

The taxpayer group that has been targeted by this initiative is unclear, but it is largely expected that charities will be hit by this initiative - the government needs to look at ways to avoid such adverse occurrences.

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