According to figures from the National Audit Office, the cost of this important boost for SMEs, and those who invest in them, has risen from £475m in 2007-2008 to £2.9bn. The figures have recently prompted Margaret Hodge, the Labour chair of the parliamentary public accounts committee, to criticise HMMR for “a failure to routinely monitor the costs” of the scheme.
Her comment,s and lack of enthusiasm for Entrepreneurs’ Relief from the Liberal Democrats, have led to concerns that it might be abolished – or at least drastically scaled back after the general election. Accountants Baker Tilly are among others who have pointed out that cutting it would be a relatively “politically painless” way to increase income at a time when governments are desperate for cash.
The Federation of Small Businesses has strongly backed the system, as have other business people. Originally introduced by Labour seven years ago, Entrepreneurs’ Relief allows business owners to pay 10 per cent capital gains tax on the sale of qualifying assets, instead of the normal 18 per cent or 28 per cent. Individuals have a lifetime limit of £10m of taxable gains, so they can save £1.8m if they maximise this relief.
Read more about Entrepreneurs’ Relief:
- The great race to exploit Entrepreneurs’ Relief
- Labour tax plans play on entrepreneurs’ minds
- Entrepreneurs’ Relief: 13 ways to get it
“With the threat of the abolition of Entrepreneurs’ Relief, it is vital that business owners who are currently negotiating a sale, try and complete the transaction before the election in May,” advised Vince McLoughlin of business, taxation and charity advisers Russell New. “With that said, if the government is serious about encouraging entrepreneurs to build businesses, contribute to the economy and tax receipts and employ staff, then changing our tax system to discourage this would be a step in the wrong direction and could alienate a large demographic of voters.”
With the improvement in economic conditions over the past 12 months, Russell New, like many others firms, has seen it reflected in levels of both business and consumer confidence.
“As a result, we have seen greater activity in the acquisition and sales market and such opportunities have been few and far between since the recession took a firm grip of the country – you can hardly blame entrepreneurs for taking the bull by the horns now,” added McLoughlin. “However, the threat of losing Entrepreneurs’ Relief should motivate them to consider an exit with a more acute sense of urgency before it’s too late.”
“Businesses are already exposed to sudden shifts in tax policies and they have plenty of other risks to navigate,” he explained. “Scrapping or severely limiting Entrepreneurs’ Relief would risk punishing those it is intended to reward. While we’re happy to see moves to safeguard the relief from abuse, business owners have, for so long, built up their businesses in the knowledge that that they would not be heavily penalised when they reach the time to sell or pass on a successful business. It is crucial for our future prosperity that support for UK entrepreneurs continues.”
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