Government to drum up £1.5bn by clamping down on tax breaks for entrepreneurs

Changes to Entrepreneurs’ Relief, dividend payments and the tax-free dividend allowance will contribute to the squeeze

Entrepreneurs are expected to feel the pinch as the government’s plans to clampdown on tax breaks raises an additional £1.5bn in tax from small business owners, according to accountancy firm Moore Stephens.

The increased tax rate on dividend payments and the reversal of an increase in the tax-free dividend allowance will contribute to the squeeze, as well as changes to Entrepreneurs’ Relief – which can half capital gains tax to 10% when a business owner sells or gives away part of their company – making it harder to claim.

Projections from Revenue & Customs suggested the amount of Entrepreneurs’ Relief claimed against capital gains tax bills will decline from £3.5bn for the previous two years to just £2bn.

With the snap general election having lost the Conservatives their majority and resulted in a hung parliament, uncertainty surrounding the country’s leadership has raised questions about the future of Entrepreneurs’ Relief as it could be scrapped under another party.

However, with the Conservatives today announcing an agreement with Northern Ireland’s Democratic Unionist Party (DUP) to back its minority government, Theresa May’s party has now secured a working majority.

Last week, the Queen’s Speech saw a number of key manifesto plans dropped, as well as a range of new laws proposed that could affect businesses, including measures on Brexit, data security and the wider economy.

Mike Cooper, partner at Moore Stephens, said: “It looks likely that, in the absence of any increases to income tax or national insurance rates, capital gains tax could be the next target to help fund public services.

“It looks like entrepreneurs should brace themselves for what are effectively sharp tax increases. 

“More than anything, small businesses want the tax system to be simple, certain and fair, allowing them to plan ahead with confidence. Unfortunately Entrepreneurs’ Relief has become a political hot potato, and businesses should take advice as early as possible to ensure access to it.”

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