Entrepreneurs in the cross hairs

By November 26, 2019November 27th, 2019Uncategorized

25 November 2019: “Entrepreneurs in the cross hairs”

2019 UK Election Manifesto Commitments from the main parties to the UK Entrepreneur

Cross Hairs”

noun

a pair of fine wires crossing at right angles at the focus of an optical instrument or gunsight, for use in positioning, aiming, or measuring.

Example: “I raised my rifle and got the deer in the cross hairs”

“Entrepreneurs”

noun

persons who sets up a business or businesses, taking on financial risks in the hope of profit.

Example: “I raised my rifle and saw many entrepreneurs in the cross hairs”

“Entrepreneurs Relief”

definition

is a tax relief that reduces the amount of Capital Gains Tax when you dispose of shares in your business. It results in a tax rate of 10% [instead of 28% on other capital gains] on the value of the disposal and you can claim as many times as you like up to £10 million of relief during your lifetime

Example: “I am currently not in the Taxman’s cross hairs and I have liquidated my business via a Members’ Voluntary Liquidation which has resulted in me paying tax at 10p on each £1 of chargeable gain that I have realised as a result of luck, risk and hard work on my part”.

It will come as no surprise to many that if you put the word Entrepreneur into the search section of the Labour Party’s 107 page Manifesto, nothing comes up. At least the party’s 44 page Costings Document entitled “Funding Real Change” does mention the E word and does not beat about the bush as far as Labour’s attitude to Entrepreneurs’ Relief is concerned

“It is widely recognised that Entrepreneurs Relief in its current form cannot continue, so we will scrap it……………………..”

In addition, Labour would align the rates of income tax and capital gains tax.  Accordingly, a business owner selling their business under this proposed regime could see a five-fold increase in their tax rate, meaning that potentially half of the proceeds of sale being taken away in tax.

How I smiled when I read what the Business Editor at the BBC wrote on its website regarding the proposed change:

“Will that [abolishing Entrepreneur Relief] demotivate people from starting their own business?

Possibly. Although I don’t know many entrepreneurs who started a business simply to take advantage of entrepreneurs’ tax relief”

I think the esteemed Business Editor should have stuck to the line “I don’t know many entrepreneurs” and left it at that.

Back in the real world, it is readily acknowledged that Entrepreneurs’ Relief is one of the most valuable tax reliefs amongst the UK’s business community, and early-stage entrepreneurs are greatly incentivised to set up businesses, with the hope that they can be sold in the future and the founders can benefit from a substantially lower rate of tax.  The lower rate of tax is a recognition of the risk and effort invested by the founders in their business. Abolish the relief and how many high-tech start-up businesses would look to set up outside the UK?

Low initial salary, long hours, risk of initial investment-these are the things that start-ups require and the quid pro quo, since the crash of 2008, has always been a favourable tax treatment when you cash out on your hard work and sweat equity. It was introduced by a Labour government for goodness sake!

Still, not to worry, the Conservative Manifesto must have some better news. DON’T YOU BELIEVE IT!

Under the encouraging heading of “Backing Entrepreneurs and Innovation”, the Manifesto makes the following, rather bleak statement:

“We also have to recognise that some measures haven’t fully delivered on their objectives. So we will review and reform Entrepreneur’s Relief”

For the words “review and reform”, read “review and restrict”.

The Tories Tax Triple Lock of freezing rates of income tax, National Insurance and VAT for the next 5 years will be of small comfort for the business owner who was hoping in the next year or two to realise the benefit of years of hard work and claim Entrepreneur Relief on the liquidation/disposal of their business.

Perhaps retirement plans need to be brought forward in order to mitigate the worst effects of the changes to the tax treatment of Entrepreneurs which are now surely coming down the line, no matter which party you vote for?