Since April 2008, Entrepreneur’s Relief (ER) has been one of the best kept secrets of British business life. Perhaps the way that successive governments have handled Entrepreneur’s Relief explains why this excellent scheme is not as well recognised, or as used, as it should be by the business community.
The Benefits of Entrepreneur’s Relief
Qualifying businesses can save between 8% and 18% Capital Gains tax. Each individual’s qualifying amounts are subject to a lifetime limit which is related to business period.
Businesses disposed of between:
- April 2008 to 5 April 2010 up to £1 million
- 6 April 2010 to 22 June 2010 up to 2 million
- 23 June 2010 to 5 April 2011 up to £5 million
- or after 6 April 2011 up to £10 million.
Spouses or civil partners working in the same business are classed as separate individuals. Therefore claim individually. Because each person is entitled the full amount of Entrepreneurs’ Relief, this makes the benefit doubly attractive. Especially to family firms.
It’s clearly an attractive benefit, so how do you ensure you qualify?
Qualifying for Entrepreneur’s Relief
Qualifying conditions for this benefit must be maintained throughout a 12 month qualifying period. This can be before the date of disposal or before the date the business ceased trading. Both individuals and some qualifying trustees of settlements can claim the relief. But, it’s not available to personal representatives of the deceased nor in relation to trusts where the entire trust is a discretionary settlement.
The relief must be claimed, in writing, by the first anniversary of the 3rd January following the end of the tax year in which the disposal took place. For businesses disposed of in 2016 this means claims must be made by 31 January 2018. The clock is ticking!
Problems with Entrepreneur’s Relief Claims
There are a number of qualifying conditions that can cause difficulties for those attempting to claim ER.
- The first is that assets can be disputed by HMRC.
- Second, there can be challenges on the issue of disposal, especially if you dispose of a business to an organisation in which you, or another relevant individual, has a more than 5% stake of ordinary shares.
- Reduction of interest in a business can also be an area of debate between the entrepreneur and HMRC. This is especially where CEO/MD/Board members etc. have moved between roles without necessarily documenting their new position and responsibilities. Or where the new business owner has lost or disposed of records relating to these roles.
- Phoenixism – the winding up of a company only to start another company soon after, is something that HMRC scrutinises very carefully. This is because it permits the business owner to take out cash at the 10% rate and then start again. A new targeted Anti-Avoidance rule has been created specifically for this behaviour
- Money boxing (aka cash stuffing) is where a business owner deliberately leaves cash in an organisation until their retirement. When the business is closed down they benefit from advantageous withdrawal of cash assets. Whilst legislation to prevent this was actually withdrawn recently as being to cost intensive, HMRC still attempt to challenge ER on this basis.
Successful Entrepreneur’s Relief Claims
In all these cases, professional support can mean the difference between success and failure. Your Finance Team provides accounting and business services to help ambitious businesses succeed at every point in their life-cycle.
So if Entrepreneur’s Relief is a possibility for your business, Your Finance Team is on hand to walk you through every stage of a successful claim. Get in touch today!