In today’s Budget, Chancellor Rishi Sunak cut the lifetime limit on entrepreneur’s relief from £10m to £1m. He said that 80 per cent of small business owners will not be affected by the move.
For a round-up of announcements relating to small business owners, read Budget 2020 what it means for small business – analysis and live blog.
‘A missed opportunity’
Though hailed as a ‘sensible reform’ by Sunak, many industry experts wanted to see it abolished altogether.
Phil Hall, AAT’s head of public affairs & public policy, said:
“AAT is pleased that the Chancellor acknowledged many of the numerous negative points that this misnamed relief has, including that fewer than one in 10 entrepreneurs have been incentivised to invest because of it, that its name is misleading and that that 75pc of the £3bn annual cost of the relief goes to just a handful of individuals.
Having acknowledged all of those problems, it’s therefore very disappointing that the Government has failed to scrap it and has instead opted to restrict the relief from £10m to £1m.
There is an overwhelming body of evidence that indicates the relief does not achieve its policy objectives, that it’s extremely expensive, misguided, poorly targeted and ultimately ineffective. Restricting its availability rather than scrapping it is clearly a missed opportunity.
The abolition of this relief would in no way be an attack on entrepreneurs or entrepreneurialism and to suggest otherwise is to ignore the evidence. It’s also worth highlighting that billions of pounds worth of assistance is available to entrepreneurs and their backers via a range of better targeted tax reliefs such as EIS, SEIS, VCT and SITR.”
A flawed policy
Others don’t necessarily see entrepreneur’s relief as a bad thing, just the way it was used.
Ritam Gandhi, founder and director of Studio Graphene, said:
“I believe tax breaks are incredibly valuable for business leaders, but we must ensure that they serve to benefit everyday entrepreneurs and not just a select few. The EIS and SEIS should be used as inspiration for policies introduced further down the line.”
Adam McGiveron, corporate partner at law firm, Shakespeare Martineau, said:
“The government has not done what many feared they would in abolishing Entrepreneurs’ Relief. They have however severely curtailed it. Reducing the lifetime limit of Entrepreneurs’ Relief from £10m to £1m effectively punishes many businesses for the actions of those few who used it to game the system.
“It won’t be a shock and those looking to sell their businesses will likely still go ahead. With the tax benefits of Entrepreneurs’ Relief now far less generous, the deals will still go ahead, but careful thought will need to be given to structuring them in a tax-efficient manner.”
A deterrent for entrepreneurs
The curtailment was simply too severe for some people, with a tough post-Brexit landscape up ahead.
Darren Fell, Crunch CEO, commented:
“Reducing entrepreneurs’ relief will push talented people and their business ideas away from the UK. It also perpetuates the polarising judgment that individual success and wealth creation is somehow morally undesirable.
“The vast majority of entrepreneurs only get wealthy if they create significant value for thousands, if not millions, of people within an economy.
“We must encourage innovation, creativity and entrepreneurship post-Brexit, not stifle the next generation of start-ups.
“Also, far more revenue would be gained by reforming corporation tax. The largest and most powerful multinationals must pay what they owe.”
Max Bautin, partner at IQ Capital, commented on the risks in disincentivising entrepreneurs by constricting Entrepreneurs’ Relief:
“It is extremely disappointing to see changes to Entrepreneurs’ Relief in the Budget, especially in the context of Brexit and claims of the ‘business friendly’ agenda.
“These entrepreneurs create this huge economic and social value at the personal expense of taking extraordinary risks with their lives, careers, families – often working crazy hours in blind dedication and without any safety nets or guarantees.
“It is therefore shocking that the ‘pro-business’ government would ask them to pay tax many multiples higher than the EIS investors who fund them. There is no shortage of investor money but entrepreneurs, the true pillars of the economy, need to continue to be incentivised. This is particularly true for ‘digital’ economy, where there is a real risk of such businesses – which London and UK’s ecosystem has been a magnet for – simply moving elsewhere.”