Could the Chancellor scrap Entrepreneurs' Relief next week?
Posted on 2nd March 2020 at 13:25
For business owners and contractors working through their limited company, they may need to get a move on if they plan to close down their company ahead of the new off-payroll working rules coming into play in April.
Last week we heard the news that HMRC announced that it will push ahead with the controversial IR35 legislation reforms much to the disappointment of contractors and businesses alike who hoped the change to the rules would be delayed or scrapped entirely.
In another blow to contractors and business owners, it has now been announced that Rishi Sunak, new Chancellor of the Exchequer, is planning to scrap entrepreneurs’ relief worth £2.7bn in the March 11th Budget in order to increase spending on public services.
What does this mean for those affected by IR35?
The news comes after E2Exchange, a group who represents over 23,000 entrepreneurs and business owners, wrote a letter to the Chancellor last week in which they urged him keep entrepreneurs’ relief in place. The letter stated, "We would urge you not to make any drastic changes in this Budget but, as the Conservative manifesto promised, conduct a review, at which evidence can be taken, of entrepreneurs’ relief and the effect any change might have."
Entrepreneurs' relief was introduced in 2008 by then-Chancellor Alistair Darling with the intention of encouraging people to start their own businesses. At present, entrepreneurs’ relief makes it possible for business owners to pay tax at a reduced rate as low as 10% when they to sell all or part of their business. The policy can also apply to company directors and employees that have 5% or more shareholding in the business. Entrepreneurs’ relief is available to partners or sole traders, as well as company directors, officers and employees with 5% shareholding or more.
The most likely change to come into effect is that the lifetime relief limit of £10 million, which has been in place since 2011, will reduce back to the original limit of £1 million. If this change goes ahead and does come into effect, it could take place on the day of the Budget itself i.e. 11th March, or alternatively from the start of the new tax year i.e. 6th April.
If the Chancellor does scrap entrepreneurs' relief and announces this at the Budget, those who might qualify for entrepreneurs' relief should think about closing their company before the Budget is announced and this only gives you just over a week. This would ensure that they can take advantage of the current benefits of entrepreneurs' relief before any potential change in law occurs.
According to Mike Cherry from the Federation of Small Businesses, "scrapping entrepreneurs’ relief would make a mockery of the idea that it’s ever sensible to build up a business rather than investing in property, land or securing a gold-plated pension. [...] Everyday entrepreneurs throughout the country who are about to retire will be left permanently poorer by this change."
Concerned? Want to discuss your options?
Nicola and the team at Effective Accounting have been preparing for the upcoming IR35 changes and its knock-on effects for close to a year. We are fully prepared to work with contractors to help you to understand the changes, navigate the complex world of IR35 and in your communications with your client.
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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