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The case for Entrepreneurs’ Relief

Darren Rigden explains why he thinks scrapping Entrepreneurs’ Relief would be a mistake.

Darren Rigden, Partner
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Despite calls to scrap Entrepreneurs’ Relief, there is a strong demand for it from entrepreneurs, to whom it provides valuable support and assurance.

HMRC’s website states “Entrepreneurs’ Relief means you’ll pay tax at 10% on all gains on qualifying assets.”

The key criteria to qualify are that the seller must:

  • be both an employee/director
  • hold no less than 5% of the issued shares immediately prior to sale.

HMRC recently relaxed the rules where a dilution event (that is a reduction in the ownership percentage), takes place on or after 6 April 2019.

This relaxation of the rules suggests the government supports the relief and has no plans to scrap it.

Calls for scrapping Entrepreneurs’ Relief

Despite the strong demand from businesses, The Resolution Foundation has called for Entrepreneurs’ Relief to be scrapped, to help fund the additional £20 billion the government pledged towards the NHS.

The think tank said the relief is expensive, ineffective and regressive” and “has good claim to being the worst of Britain’s main tax reliefs… there is no evidence that it has led to any substantial increase in genuine entrepreneurship.”

The case for Entrepreneurs’ Relief

The Resolution Foundation’s comments do not align with how many businesses view the relief.

When we speak with clients, it is one of the most popular topics to emerge - there is demand from businesses for any additional support that is available.

Funding the NHS is of course of the utmost importance, but scrapping Entrepreneurs’ Relief entirely would represent a blow to business.

From my experience, Entrepreneurs’ Relief appears to work well and is something that business owners are keen to take advantage of.

The typical entrepreneur works hard to build up their businesses, often taking risks in the process, putting their personal assets at risk and paying taxes as the business grows.

Many entrepreneurs try different business ventures, many of which fail, before they achieve a success. Entrepreneurs’ Relief gives some assurance that, providing the criteria are met, they will pay a lower rate of tax on exit, effectively compensating them for their hard work and the risks they have taken.

Scrapping this relief may discourage people from setting up businesses, particularly in the current climate of uncertainty.

Long term rewards

It must also be remembered that the relief was created to foster long term benefits, but it has only been in place for little over a decade.

Many businesses have a life cycle lasting much longer than 10 years and so have yet to benefit.

How we can help

Our team has all the expertise and experience needed to help you manage the finances, and the taxes, of your fledgling business.

Contact us

Darren Rigden
Darren Rigden
Partner, Audit and Business Solutions