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entrepreneurs relief to be scrapped
3 September 2018
Category News & General

According to the Resolution Foundation, a leading independent think tank, Entrepreneurs’ Relief is “expensive, ineffective and regressive” and should be scrapped.

What is Entrepreneurs’ Relief?

Initially introduced by the Labour government in April 2008, Entrepreneurs’ Relief allows those who are closing down their (solvent) company the opportunity to pay half the normal rate of capital gains tax. Instead of paying 20% in tax, they would only pay 10%, up to £1m worth of gains. The coalition government significantly extended the relief after April 2011, by raising the cumulative lifetime gains up to £10m.

Entrepreneurs’ Relief is intended to encourage entrepreneurship, especially for those looking to start or invest in small businesses, and bring wider benefits to society.

Making way for NHS funding

However, the Resolution Foundation has labelled the tax break for entrepreneurs as one of the “… worst of Britain’s main tax reliefs”. It feels that the government should scrap it, in order to help fund a £20bn pledge to the NHS.

Chancellor Philip Hammond has now been urged to put a stop to the tax relief, after claims that it only helps a small percentage of wealthy individuals. The think tank has called for the relief to be abolished in the Autumn Budget, stating that there would be annual savings of around £2.7bn, the proceeds of which could go straight to the NHS.

Expensive, ineffective and regressive

Findings from the think tank have shown that spending for the tax relief has massively increased to over £2bn a year, from the initial planned cost of around £200m, thanks to a greater than expected use. It’s estimated by HMRC that the relief costs up to £2.7bn just last year alone – an amount which is higher than the entire annual budget for the country’s intelligence services.

The actual benefit from Entrepreneurs’ Relief has been concentrated amongst only a few wealthy individuals. In 2015-16, it’s estimated that 52,000 individuals claimed Entrepreneurs’ Relief. However, as few as 12% of the beneficiaries accounted for 69% of the total gains, with 6,000 individuals claiming more than £1m each.

It’s also been found that when setting up their businesses or when disposing of them, many entrepreneurs are unaware of the tax relief. This has been seen as further evidence that the relief hasn’t led to any substantial increase in genuine entrepreneurship.

An MVL is a very tax-effective way to close a company

Tens of thousands of company directors have taken the opportunity to close down their solvent company with a Members’ Voluntary Liquidation (MVL) because of its great tax advantages. An MVL can be the most tax-efficient way to close down a company, and it can allow those who qualify for Entrepreneurs’ Relief to fully benefit from a 10% marginal rate on distributions.

Clarke Bell’s senior partner, John Bell, said:

“With the Budget looming, a lot of directors who are considering shutting down their company will be worried about these calls for Entrepreneurs’ Relief to be scrapped.

This, along with concerns regarding the IR35 changes to the private sector, may well encourage a lot of directors close down their company now – so that they can get their tax savings before any changes come into effect and muck-up their tax-planning.”

Do you want advice on closing your company?

For your free advice on closing down your company with the very tax-efficient MVL process, just contact Clarke Bell today on 0161 907 4044 or [email protected]

If you are worried about your business or just want a (free) no obligation chat, contact Clarke Bell on 0161 907 4044 or [email protected] today. Our Licensed Insolvency Practitioners will provide you with the best professional advice for your situation.

For your free expert advice 0161 907 404

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