Backlash over £2.7bn tax raid on small firms

THERE was a furious backlash last night against Government plans for a £2.7bn raid on small and medium-sized businesses.

Chancellor Rishi Sunak is proposing to use next Wednesday’s Budget to scrap entrepreneurs’ relief – a tax break that was introduced in 2008 to encourage start-ups.

It allows business owners to pay capital gains tax at 10pc, rather than the usual rate of 20pc, when they sell their firm, up to a limit of £10m.

Removing the break would be a ‘tax on ambition’, critics said last night, and would encourage entrepreneurs to move abroad, hitting UK jobs.

The Federation of Small Businesses (FSB) said that if the tax break is scrapped, it estimates that business owners will be hit with a £15,000 penalty on average. It added that scrapping the relief would break manifesto commitments made just two months ago and will destroy retirement plans of the owners of small business, 90pc of which are valued at less than £1m.

A group of 150 prominent business owners – including Seraphine founder Cecile Reinaud and Graham hobson, who sold the printing company Photobox for more than £300m in 2016 – wrote to the chancellor on Friday to say entrepreneurs will move abroad if the relief is removed.

Small and medium- sized businesses (SMes) provide jobs for 16m people in Britain.

The Government hopes scrapping the tax relief will help pay for nurses, police officers and building projects in the Midlands and the North.

Mike Cherry, chairman of the FSB, said: ‘Scrapping entrepreneurs’ relief would make a mockery of the idea that it’s ever sensible to build up a business. This move would mark an incredibly damaging way of telling anyone thinking of investing in their business not to bother.

‘ The Conservative Party made a clear commitment to reform – not scrap – this relief in its general election manifesto. They should keep to their word.’

Matt Kilcoyne, of the free market think-tank the Adam Smith Institute, said: ‘The entrepreneurs’ relief is a policy that is based on good, solid Conservative values, so it seems strange for Rishi Sunak to put a tax on ambition.’

The relief cost the Treasury £2.7bn in 2018/19, compared with £427m in 2008/9 when it was introduced. The Treasury declined to comment.