Taxman to wipe £1.5bn off Entrepreneurs' Relief

Seemingly small tweaks to Entrepreneurs’ Relief will actually wipe £1.5billion off the value of the tax break contractors use when selling all or part of their PSC, an advisory warns.

Unveiled at Budget 2015, the changes mean that ER is now significantly more difficult to claim in 2017 because claimants are made to ‘jump through hoops,’ says Moore Stephens LLP.

The tax advisory says these hoops include requiring the business to be a ‘trading company;’ banning ER on goodwill claims on incorporating and ensuring any liquidation is not caught by TARR.

The collective effect of the restrictions is why HMRC projects that only £2bn of ER will be successfully claimed against Capital Gains Tax bills this year, down from £3.5bn in each of the two previous years.

Mike Cooper, partner at Moore Stephens, which disclosed the projection, says this represents a 43 per cent plunge in the value to business owners of the popular tax break, which serves to cut their payable CGT rate to just 10 per cent.

“The gloves are now off for entrepreneurs”, he said. “It looks likely that, in the absence of any increases to income tax or national insurance rates, Capital Gains Tax could be the next target to help fund public services.”

But Cooper regards the raiding of ER as not an isolated incident -- it is “part of a general tax squeeze on owner managed businesses”, and so they should “brace themselves”, he said.

Evidencing his claim, the accountant pointed to the Budget 2017 clampdown on dividends and the attempt to raise self-employed National Insurance. He could have also cited the removal of the NI Employment Allowance for single-director companies.

“More than anything, small businesses want the tax system to be simple, certain and fair, allowing them to plan ahead with confidence,” Cooper said.

“Unfortunately, Entrepreneurs’ Relief has now become a political ‘hot potato’, and businesses should take advice as early as possible to ensure access to the relief going forwards.”