Entrepreneurs’ Relief should not be scrapped says London firm of chartered accountants
Entrepreneurs’ Relief (ER) is a genuine tax break for business owners and should not be scrapped said Robert Pullen, tax manager at London chartered accountants Blick Rothenberg LLP.
Following a report by the National Audit Office, Margaret Hodge, chair of the Public Accounts Committee, has called for much closer scrutiny of ER to prevent perceived fraud and misuse. The comments are based on an increase in the tax cost of ER – from £500m in 2008/09 to an estimated £2.9bn in 2013/14.
Robert commented: “If ER is heavily scrutinised or abolished so that gains arising on such disposals are taxed at up to 28%, the UK could see entrepreneurs no longer setting up in the UK, or leaving the UK prior to sale. It shouldn’t be lumped in with tax avoidance schemes either as it is meant to encourage businesses to flourish.”
ER is available on disposals of certain qualifying businesses, or shares in businesses, where various conditions and criteria are met. It reduces the tax rate on gains on such disposals from 28% to 10%, subject to a lifetime limit of £10m of gains per person.
Robert added: “ER is designed to assist entrepreneurial businesses in the UK, which indirectly increases employment and contributes to employment taxes, VAT, corporation tax, etc. It also effectively retains entrepreneurial talent in the UK, which is currently ranked fourth in the world according to the Global Entrepreneurship Index.”
At present, the tax take from capital gains tax as a whole amounted to less than 1% of the total tax take in 2012/13, and this has been steadily decreasing over the past three years by over 10%.
Very few taxpayers, approximately 36,000, claimed ER in 2012/13, with the tax cost as a result of this amounting to approximately £2.2bn. This is partly a result of the increase in the lifetime limit from £1m in 2008 to the current limit of £10m now.
Robert continued: “ER was introduced in 2008 by the then Labour Government to replace taper relief which taxed qualifying capital gains at 10% but taper relief was not subject to a limit. It is a genuine statutory relief to encourage entrepreneurial business. The fact that it has cost the Government more in recent years is a positive sign that business activity is on the up.”