Pre Pack Administration

Concerns Over the Cost of Entrepreneurs Relief to the Exchequer.

Tax advisers up and down the country should act swiftly to ensure their clients can benefit from entrepreneurs relief as warnings come of possible changes to entrepreneurs relief rules.

This process, which allows for shareholders to withdraw company funds and pay less tax on capital gains, is currently under increased scrutiny by the government due to a report by the National Audit Office in November which confirmed that its cost had risen from £475 million in 2007/2008 to £2.9 billion in 2013-2014.

It is thought by many supporters of this relief system that the increased cost of this process in recent times, and the current aims of governments to gain income as painlessly as possible, could lead to a withdrawal of the relief altogether.  My view however is that the complete withdrawal is unlikely to occur but that it could be curtailed in a similar fashion to that of tax-free pension allowances causing many to lose out.

The Labour chair of the parliamentary public accounts committee, Margaret Hodge, has criticised H.M. Revenue & Customs “failure to routinely monitor the costs” of this relief and has called for greater scrutiny to ensure that fraud or abuse is prevented.

How Could a New Government Curtail Entrepreneurs Relief?

  1. The current system of relief on capital gains is based on a lifetime limit of entrepreneurs relief and therefore this limit could be lowered.
  2. The relief could apply to less businesses therefore to give an example, the construction industry could be stopped from being given this relief as these are by far the biggest users of the relief currently.
  3. General eligibility rules for when the relief can be applied could be tightened.

Why Should Entrepreneurs Relief Remain the Same?

I believe that the current system encourages people to set up in business as they can obtain greater benefit if it expands or is successful and they sell up.

Many have also said that the current relief system discourages business owners from completing sales of their business through offshore centres and therefore more tax is paid in the UK on business sales as a result.

I would also argue that the increased costs of entrepreneurs relief claims is as a result of the increase in business activity over the period reported because in 2007/2008, when the lower costs were reported to of occurred, business was at a low and the property market too.

Whatever the future may hold for this relief system, if you wish to ensure that your client does not lose out, then contact us now for a Solvent Liquidation quotation and we’ll ensure that your client gets the relief they deserve.

For more details about Bridge Newland’s shareholder distribution process and the criteria for complying with entrepreneurs relief see our page on Solvent Liquidations.

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