Entrepreneurs' Relief seen as ripe for reform

Criticism about Entrepreneurs’ Relief not being monitored just as electioneering for May has intensified has fused to create speculation that the tax break may be reformed – or restricted.

While a removal was reported yesterday in tax advisers’ eyes as “unlikely”, a tightening in eligibility for the relief, or addressing the lifetime limit, was seen by them as a prospect.

Their concerns can be traced back to November, when the National Audit Office criticised both the Treasury and HM Revenue & Customs about Entrepreneurs’ Relief (ER).

In particular, the NAO found that the administration of tax reliefs, including ER, “cannot be value for money” because HMT and HMRC do not routinely monitor the cost or value of it.

Officials are aware, however, that ER’s cost to the exchequer has leapt by over 500% since it came in under Labour in 2008-09, and that those “costs have continually exceeded forecasts.”

For example, ER’s estimated cost of £2.9billion in 2013-14 is about three times greater than the forecasts published by the government predicted.

In the Revenue’s defence, “there have been several changes to the relief that might help to explain the increase,” the NAO said in its report.

However, the spending watchdog also said the tax authority still had “not quantified these changes robustly or reviewed the accuracy of its forecasts”.

HMRC answered the charge by pointing to both the Capital Gains Tax rate changing and reforms to the relief, which can let business people disposing a company pay CGT at 10%, not 28%.

But the large gap between the two rates; the lack of tabs kept on the relief and concern that it has been used to duck tax could explain claims that its card has been marked by politicians.

According to a statement in yesterday's Financial Times, the Lib Dems have expressed an interest in “refocusing” ER on “genuine entrepreneurs”, so it is not a “loophole” for the “super-rich”

The newspaper positioned Labour as less reform-hungry, as the party apparently views ER as rewarding business owners – a reason why its officials  reportedly say they praise the relief.

Editor’s Note: Related Reading –

Unusual Entrepreneurs’ Relief case is a timely reminder