Tax clampdown on entrepreneurs to bring in £1.5bn
THE Government will reap an extra £1.5billion in tax from small business owners this year after a clampdown on tax breaks for entrepreneurs.
The extra income is part of a wider squeeze on small business, according to accountancy firm Moore Stephens, which calculated the effect of the changes.
These relate to Entrepreneurs’ Relief, which can cut a business owner’s capital gains tax from 20 per cent to 10 per cent when they sell or give away all or part of their company.
But the relief is now significantly more difficult to claim, following changes in the 2015 Budget, which restricted the types of people and businesses that are eligible for it.
Other signs of the tax squeeze identified by the accountancy firm include the increased tax rate on dividend payments and reversing a recent increase in the taxfree dividend allowance.
Moore Stephens said Revenue & Customs projections suggest only £2billion of Entrepreneurs’ Relief will be successfully claimed against capital gains tax bills this year, down from £3.5 billion in each of the past two years. Mike Cooper, partner at Moore Stephens, said: ‘It looks likely that, in the absence of any increases to income tax or national insurance rates, capital gains tax could be the next target to help fund public services.’ He added: ‘It looks like entrepreneurs should brace themselves for what are effectively sharp tax increases. More than anything, small businesses want the tax system to be simple, certain and fair, allowing them to plan ahead with confidence. Unfortunately Entrepreneurs’ Relief has become a political hot potato, and businesses should take advice as early as possible to ensure access to it.’
Following the General Election, some experts have advised selling businesses before tax breaks are eliminated. For example, acquisitions broker Capital and Trust has said: ‘If a new Government is voted in [in the coming months] then anything other than a Conservative Government will likely see Entrepreneurs’ Relief abolished. Not meaning to scare monger, just stating the obvious.’
Tony Fox, chief executive of mergers and acquisitions consultancy Berkeley Cannon, has also suggested that it could be a peak time to sell.
He has said: ‘How many people do you know that were making excellent profits and doing very well, delayed selling and then missed their opportunity? Putting them back decades? I think the markets are littered with them, from recruitment companies, to dotcom businesses, to banks [and] mobile manufacturers.’
He warned: ‘No business is immune to market crashes.’