Entrepreneurs’ Relief - What is Entrepreneurs’ Relief?
Entrepreneurs’ Relief is a UK tax break available to individuals who are selling all or most of their business
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When a small business owner gets to the point where they are looking to sell most or all of their ownership of a business that they had a hand in launching, tax authorities in the UK provide a reduced tax rate. This is known as ‘Entrepreneurs’ Relief’.
Why apply for Entrepreneurs’ Relief?
If a business owner chooses to use Entrepreneurs’ Relief in a complete or partial sale of a business, the tax on capital gains is just 10% (instead of the standard 20%), providing a potentially significant savings.
This tax break aims to encourage the continued creation and sale of new businesses, and works as an incentive for those who are launching their own companies and will be selling them at some point down the line.
You can continue to apply for Entrepreneurs’ Relief for multiple businesses - there is no limit to the number of times you can do so. However, there is a limit of £10 million claimed under the tax break in a lifetime.
Am I eligible for Entrepreneurs’ Relief?
In the 2019 Spring Statement, Chancellor Philip Hammond announced a few changes to eligibility for Entrepreneurs’ Relief, increasing the requirements for businesses from April 2019, onwards.
The new regulations require that a business must be owned by the individual for two years (as opposed to the previous one-year rule) before sale of the business in order to be eligible for Entrepreneurs’ Relief.
In addition, from October 29th, 2019, entrepreneurs will only be able to qualify for Entrepreneurs’ Relief if they own shares that entitle them to a minimum of 5% of the profits (as opposed to previously only needing to own 5% of the shares and holding 5% voting rights). These previous requirements still apply, with the new profit requirement added on.
How to get Entrepreneurs’ Relief
If you are looking to sell your business and find that you are eligible for Entrepreneurs’ Relief, you can claim it in your Self-Assessment tax return. You can find out more including details on filling in Section A in HMRC’s Entrepreneurs’ Relief help sheet.
The future of Entrepreneurs’ Relief
There has been pressure from several sources to abolish Entrepreneurs’ Relief entirely and to place the, approximately £2.7 billion estimated savings, into the healthcare system. With the government looking to contribute more funds to NHS, the new regulations doubtlessly play a part in reducing the number of businesses eligible for Entrepreneurs’ Relief.
Entrepreneurs’ Relief and accounting & invoicing software
The first step in selling a business is keeping track of the cash flow of that business and maintaining a clear understanding of the financial health of the business. Today, this can be done easily from day 1 with online, cloud-based accounting & invoicing software like Debitoor.