Support for new firms

Call to scrap entrepreneurs tax relief and invest in start-ups

Scottish banknotes

Savings ‘should be diverted into helping start-ups’

A tax relief for entrepreneurs should be scrapped and the the money diverted into supporting start-ups and those firms looking to grow, says an accounting body.

Entrepreneurs Relief enables business owners to pay a reduced 10% rate of capital gains tax on all gains on qualifying assets, rather than the standard 20% rate. 

But the Association of Accounting Technicians (AAT) says it has numerous shortcomings and wants it abolished.

AAT, a professional body with over 140,000 members – including 4,250 licensed accountants serving more than 400,000 British SMEs – has urged the Government to scrap ER on numerous occasions over the last three years. It is now urging Sajid Javid to take action in his first Budget, possibly in November.

Some supporters of the relief say it encourages investment, but the AAT points to HMRC commissioned research in 2017 indicating that 92% of claimants were not influenced to invest after receiving it.

The AAT adds that the average age of recipients of ER is 57, which is indicative of those taking early retirement rather than start-up entrepreneurs.

Furthermore, the independent Office of Tax Simplification (OTS) concluded in a recent report that it found no evidence that ER encourages investment in new business ventures.

There has also been criticism of ER from the National Audit Office, Office for Tax Simplification, and think tanks including the Resolution Foundation, ippr as well as the Institute for Fiscal Studies. 

Phil Hall, AAT Head of Public Affairs & Public Policy said: “The Government is absolutely right to want to encourage entrepreneurialism but is wrong to believe that Entrepreneurs Relief is a good way to do this.

“There is now an overwhelming body of evidence to suggest that the relief is not achieving its policy objectives, that it’s extremely expensive, misguided and ultimately ineffective. 

“If the Government is serious about wanting to encourage entrepreneurialism, committing this £3bn of relief to helping small British businesses to grow and prosper would be a far better investment for UK plc than encouraging business owners to do nothing more than sell-up.”

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