Do the chancellor’s reforms to entrepreneurs’ relief strike the right balance for founders?
YES, says Mike Cherry, national chairman at the Federation of Small Businesses.
Compromise is a fact of business life. Every dealmaker knows that it’s better to bend a little than break off negotiations. Entrepreneurs’ relief is a vital incentive that’s central to retirement planning for small business owners. We were up against it on this one — with relentless media briefings against the incentive from think tanks right up to Budget day.
What we’ve managed to secure, though, is a compromise that looks more and more like a win-win the closer you look at it. Of the 43,000 business owners who claim entrepreneurs’ relief each year, 38,000 do so on firms worth under a £1m. They have nothing to fear. The others will still receive a substantial reward for their endeavours.
The move will save the Treasury £6bn over five years — £6bn which will be spent supporting small firms, through an increase in investment incentives and an increase in the employment allowance. This reform strikes the right balance: every founder will still benefit, and savings made will be reinvested into small businesses.
NO, says Julia Rosenbloom, partner at Smith & Williamson.
The decision to slash entrepreneurs’ relief by 90 per cent, instead of abolishing it all together, may be seen as a small win by some in the business community. In reality, it’s a big blow for those who have committed to and invested heavily in new businesses.
Entrepreneurs’ relief has long been viewed as the gold standard for encouraging enterprise. Its impact in the creation of new businesses is clear: in 2017–18, 43,000 people claimed it. Cutting it will almost certainly deter prospective entrepreneurs from starting a business, and investors from investing in them — exactly the opposite of what Britain should be doing in a post-Brexit economy.
The change is effective immediately, meaning that thousands of British entrepreneurs have probably doubled their tax liability. For those who have entered into unconditional or rescindable contracts, or transferred their shares into another company, their aim to bank entrepreneurs’ relief pre-Budget may have failed, and they will have to seek further advice.
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