Thinking about selling your business?

Feb 26, 2020

Thinking about selling your business? - ICS

ACT NOW whilst Entrepreneurs Relief is still available...

Entrepreneurs Relief is to be reformed or removed in 2020

With the next budget on 11th March 2020, it’s expected Entrepreneurs Relief will be reduced or removed. According to MoneyWeek this could mean “Selling a business, (in the future) is likely to face a 50% tax rate, a five-fold increase” whereas at present, if eligible for Entrepreneurs Relief you only pay 10% tax.

What is Entrepreneurs Relief?

First introduced in 2008 by Gordon Brown, Entrepreneur’s Relief aim, was to make the UK ‘the European centre of entrepreneurship’ by reducing the amount of capital gains payable when you sell/dispose of all or part of your business.

Currently you can benefit from Entrepreneur’s Relief and only pay 10% tax on any business sold with a lifetime limit of £10 million, but this could soon be ending...

The idea behind the Entrepreneur’s Relief was that business owners would use this extra revenue to reinvest in other businesses or new start-ups. Now viewed as just another tax loophole allegedly costing £2.4 billion every year, experts have concluded that it could be removed or have the rules tightened to make fewer eligible.

Why you should be preparing for this change?

The changes to Entrepreneurs Relief is likely to hit thousands of small businesses, particularly those business owners who have planned their future based on being able to claim Entrepreneurs Relief. Many will have invested in their businesses on the assumption the investment would be returned or even planned their retirement based on a tax efficient sale of their business.

Who is currently eligible for Entrepreneurs Relief?

To be eligible to claim Entrepreneur's Relief currently, you must:

  • Be a director or employee
  • Own at least 5% of the share capital and be entitled to 5% of voting rights
  • Own fully or have shares in the business for at least 24 months before the date of disposal

What might the changes to Entrepreneurs Relief look like?

  • Further increase to the period which shares must have been held before the date of disposal (i.e. increase from 24 months, making fewer eligible)
  • Reduce the £10 million lifetime cap towards £1 million mark
  • Introduce a maximum age to qualify (to promote investment into other businesses rather than retirement)

What can I do now if I’m ready to wind up my business and currently qualify for Entrepreneurs Relief?

If you choose a Members’ Voluntary Liquidation (MVL), distributions of cash and assets are treated as a capital distribution and subject to Capital Gains Tax (CGT). If you can claim Entrepreneurs’ Relief prior to any budget changes, you will benefit from CGT at a rate of just 10%, resulting in significant tax savings.

We can handle the MVL / solvent liquidation process for you, but you must act quickly to ensure a timely winding up before any budget changes on 11th March. If you would like to discuss the process in more detail, get in touch today and speak to one of our licensed insolvency practitioners.

Dealing with IR35…

Small businesses affected by IR35 need to be aware of the impending changes to Entrepreneurs Relief and seek advice sooner rather than later if the structure/way of working is being altered and their limited company needs to be wound up.

Those considering the best way to exit their limited company following the private sector IR35 changes in April 2020, as well as the alternative ways to operate as a contractor, must consider their options. There are many routes available when it comes to exiting your business and choosing the best one requires the advice of a Licensed Insolvency Practitioner.

Get in touch today to find out more on 0800 731 2466.