There's plenty of talk about Portsmouth today after the High Court adjourned its winding-up order for seven days.

Her Majesty's Revenue and Customs (HMRC) revealed the club owes £11.5 million and declared it "insolvent", but Portsmouth's representatives claimed they have two firm offers of fresh investment and convinced the court they deserve more time to complete a business sale.

In Wales, meanwhile, all eyes have been on yet another football club facing the threat of administration after a winding-up petition was issued by HMRC. Cardiff City, like Portsmouth, appeared in court today for the application.

The 2008 FA Cup finalists were given another 28 days to settle their tax bill after presenting a payment of £1 million this week, made as a result of land sales around their Cardiff City Stadium ground.

Another winding-up order will be issued if a further £1.6 million isn't produced by 10 March, though the club's most recent accounts suggest it had debts totalling nearly £33 million as of May 2008.

Cardiff City originally received a winding-up order last November, when the club was ordered to settle its debts within 70 days. It then defaulted on the arrangement, prompting HMRC to issue another petition.

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Entrepreneurs considering selling their businesses over the next year are breathing a sigh of relief today as the chancellor, Alistair Darling, held back from lifting capital gains tax rates in today’s Pre-Budget Report.

Expectations in many quarters were that the chancellor would raise the capital gains tax rate to between 20 – 30 per cent, in a bid to shore up public finances and align the CGT rate more closely with the new 50% upper level of income tax.

In our view, the decision to keep the CGT rate at 18% was certainly the right decision, as a rise in the rate would have a very negative effect on investment in general in this country, affecting the risk sentiment of that very important sector of our economy – entrepreneurs. The 10% Entrepreneurs’ Relief also remains in place.

The government announced its intention to extend the Enterprise Finance Guarantee scheme, which has helped around 6000 businesses receive commercial loan funding so far. The extension should guarantee another half a billion pounds of loans to be granted to small UK companies.

It is also encouraging to see that empty property relief has been extended, which should help many smaller businesses escape business rates on their empty properties where the rateable value is below £18,000.

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One of the possibly unintended consequences of the chancellor’s recent Budget 50% tax rate hike is the encouragement of private and family businesses to keep their profits within the business.

Although withdrawing money from a company attracts corporation tax at 25%, if that then goes into a personal account it is taxed at 40% to 50% for higher rate tax payers (the 50% rate effective for those earning over £150k from April 2010).

Keeping the funds in the business is a viable choice for those who don’t need the money right now personally. The business can invest the money, upon which any profits are only going to be taxed at 25%.

If and when the business gets sold, the owners will only have to pay an 18% tax on the capital gain, with only 10% payable on the first million pounds.

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First there was retirement relief, then there was business asset taper relief, and now there is entrepreneurs’ relief. No doubt the next government will try something else! The latest relief has been introduced following the uproar from small business owners who felt that the proposed 18% CGT was an unfair tax levied when they sold their businesses to fund their retirement.

The new relief, available from April 6 2008 will be available in respect of gains made on the disposal of all or part of a business or on disposals of business assets.

The first £1 million of gains that qualify for relief will be charged to capital gains tax at an effective rate of 10 per cent. The £1 million is a cumulative lifetime relief and as such can be used on a single transaction or on a series of transactions. Gains in excess of £1 million will be charged at the normal 18 per cent rate. Of course, this is not so great for entrepreneurs who will buy and sell businesses through out their lifetime. So perhaps entrepreneurs’ relief is a bit of a misnomer.

As such, the new relief is a kind of resurrection of the old retirement relief, which was phased out between 1998 and 2003. The new rules, to be enacted on April 6, are simpler. There is no minimum age limit for entrepreneurs’ relief (under retirement relief you generally had to be 50 plus to get relief). And in general, entrepreneurs’ relief will be available where the relevant conditions are met for a period of one year, instead of the retirement relief qualifying period of up to ten years.

There will be no minimum age limit for the relief. In general the new relief will be available where the relevant conditions are met for a period of one year.

Where a business simply stops trading, rather than is sold, relief will be available on gains on assets formerly used in the business and disposed of within three years of the cessation of the business.

The rules are quite complex and in order to qualify for the relief there a number of conditions that need to be met. We do take a closer look at the draft legislation in our subscribers section of the report. If you are not already a subscriber then please join us and subscribe.

It should be noted that the final legislation has not been seen so there may be some small amendments. We will take a look at the legislation and if there are any relevant changes we will post them here on this blog.

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There exists a glaring omission in the new Capital Gains Tax rules – they did not address earn-outs. Thousands of entrepreneurs who sold their businesses in 2005/06 have until 31st January to sort out a CGT tax nightmare for which HMRC issued no guidelines whatsoever.

This affected those people who are receiving part of their payment for their business in shares or loan notes as an earn-out (deferred payment). They had to tell HMRC before the end of January whether they were paying the CGT immediately or deferring it until they are able to cash the shares/loan notes in. The consequences of making a wrong decision can be enormous.

Thanks to PKF (UK), who provided the following illustration of this problem:

• A qualifying business was sold in 2005/06, half for cash and half for an earn-out right in the form of loan notes redeemable in 2009.
• The owner had to pay 10% CGT on the cash part by 31 January 2007 but 18% on the other half of the proceeds received when a loan note matures after 5 April 2008.
• The owner can elect, by 31 January 2008, to treat the loan note proceeds as received in 2005/06 to get the 10% tax rate but will have to pay the tax now, long before he gets the final cash (and pay interest because the tax should have already been paid!).
• If the owner does make the election it cannot (currently) be revoked at a later date – for example, when the position on the new Entrepreneurs’ relief is known.

In a further twist, the Institute of Chartered Accountants of Scotland have claimed that the government’s latest CGT changes could have broken European law.

The EU law states that changes to tax legislation must provide a reasonable time period to claim the money. From the date of Alistair Darling’s announcement, business owners had less than ten weeks to arrange their assets or even sell their businesses to protect some of the indexation relief accruing because of inflation.

Previous tax decisions made under European law have indicated that even by having a transitional period of three months would be insufficient. Icas called for the chancellor to defer implementation of the legislation for two years to give businesses enough time to rearrange their affairs.

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Well, what a surprise. Several hours after the chancellor announced the changes to the capital gains tax regime yesterday, a few very nasty details emerged.

The first startling discovery was that ‘entrepreneurs’ relief’ is in fact a misnomer. The 10% CGT rate turned out to be a lifetime allowance, an effective kick in the teeth for all serial entrepreneurs for whom a one-off £80,000 tax concession will not make a huge difference. They are more concerned about the 80% tax hike they will have to wear for all their hard work for the end of their days.

Secondly, this new two-tier system will require a whole raft of new anti tax avoidance legislation to be drawn up – so much for the supposed objectives of creating a simple system.

Thirdly, the government is striking out one of the chief incentives for retention of key staff. Any employee with less than 5% of the company they work for is ineligible for the Entrepreneurs’ Relief. Not many can lay claim to that level of stake-holding. The vast majority of employee shareholders will therefore face a near doubling of tax rates on share gains.

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Alistair Darling today issued a major concession to the forthcoming capital gains tax changes due to come into effect on 6th April.

A new 10% Entrepreneur’s Relief is to introduced (similar to the old Retirement Relief), for business owners selling up and making gains of less than a million pounds. Under the CGT plans announced at the end of last year, the existing taper relief would have been replaced with an across-the-board flat 18%, meaning an effective 80% hike in tax rates for vendors. This will now be lowered to 10% for business sale gains of under one million pounds.

Small business owners should welcome these changes, as it certainly goes some way to reclaim the ‘entrepreneur spirit’ many outraged business pressure groups have said the government had damaged with the new proposals.

Nobody I have spoken to about this has yet manged to locate the fine print on the government website, so watch out for the devil in the details!

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It looks like the Chancellor is going to have a busy New Year with the Northern Rock crisis and problems over the business community’s opposition to the CGT reforms.

Continuing uncertainty over the scope of the Capital Gains Tax reforms have been exacerbated by the Treasury’s decision to delay any announcement until the New Year. Whilst uncertainty is never a good thing in any market, we feel that more considered reforms are a step in the right direction. It was obvious that the Treasury had not thought through the reforms properly before and if Alistair Darling needs a few more weeks to properly consult on the tax changes and so come to a better decision, then that is no bad thing.

Rumours of delays until April 2009 and more concessions to serial entrepreneurs abound. However, our view is that it is inevitable that generally higher CGT taxes on business will stick. Particularly hard-hit will be smaller companies who also face an increase in corporation tax from 19p to 22p in the pound in 2009.

Not unsurprisingly, the Tories have moved fast to place bold business tax cuts at the top of their election manifesto.

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