First Corporation Tax and now Entrepreneurs’ Relief: where’s the break for British business in 2020’s budget?

To say the business community is looking ahead to the forthcoming budget with bated breath is something of an understatement. The government’s triple pledge on tax – to not raise income tax, National Insurance or VAT – is on every CEO’s mind. Many eyes will also be on what the new chancellor does about Entrepreneurs’ Relief. Could the reversal of a planned reduction in Corporation Tax be a sign of more to come in the budget?

If – as predicted – Rishi Sunak’s maiden budget takes an axe to the benefit of Entrepreneurs’ Relief, it won’t just be super-wealthy business owners who lose out. Plenty of what the Federation of Small Businesses (FSB) calls ‘everyday entrepreneurs’ are set to suffer too. Mike Cherry from the FSB has pointed out that of the 38,000 business owners who claim the £2.7 billion total relief (2018-19’s annual cost), only 10% are selling businesses of over £1 million.

The Conservatives pledged to reform Entrepreneurs’ Relief in their pre-election manifesto and fears that last year’s reforms didn’t go far enough are almost certain to be borne out in 2020’s budget. Introduced by Gordon Brown’s government in 2008 to stimulate new business growth, Entrepreneurs’ Relief allows individuals to pay a reduced rate of Capital Gains Tax when disposing of a business: 10% as opposed to 20%. With a lifetime value of up to £10m, the relief has the potential to be worth £1m to eligible business owners.

It’s no wonder then, that the 11 March budget is one of the most eagerly anticipated in recent memory. At a time when British business needs all the reassurance it can get, what with the twin threats of Brexit transition and coronavirus, there’s no doubt that government is signalling its expectation that business owners should pick up some of the tab for increased public spending.

Led by Conservative peer Lord Leigh of Hurley, a group of influential British entrepreneurs – including the co-founder of Mumsnet and the inventor of Trunki – have signed and sent a letter of protest to Rishi Sunak, expressing the fear than start-ups could choose overseas rather than Britain as a base for their new businesses.

Our founder and CEO Toby Harper commented:

‘Entrepreneurs who do well and succeed should be rewarded. That really lies at the heart of what I and many others running businesses simply want to see in the budget: policies that help us. Not ones that hold us back or make us pause for breath.'

Every year my company supports more than 1,000 clients nationwide. I’ve already picked up a real sense of optimism during the first part of this year. But for that optimism to remain, we need a budget that doesn’t leave businesses worrying about the future.'

How about we reward companies for being environmentally aware: tax breaks for the greenest firms are an investment in our future. And what about more relief for those companies hiring apprentices? I know this would be welcomed by many small businesses and start-ups. In turn, it would help us to find our next generation of entrepreneurs.’

Most commentators are now of the opinion that ER will go completely, rather than be reformed again. There’s certainly widespread agreement that businesses will lose out financially if the relief is scrapped. The question that this government now needs to tackle is how they are planning to reward entrepreneurial spirit in post-Brexit Britain while raising the funds to deliver on their pledge of increased public spending? It’s a high-risk tightrope to walk, and one on which the Prime Minister is staking his career.