 Entrepreneurs’ relief proves Treasury can draft good tax legislation!
28 February 2008: Tax experts at accountants PKF have welcomed the draft legislation for the new Entrepreneurs’ relief, which has been released today by the Treasury, but condemned the stress and uncertainty that the business community has suffered, following the Government’s hasty announcements in the Pre-Budget Report.
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 | PKF National Tax Director, Lisa Macpherson, described the legislation as ‘simple and sensible’ and continued: “The rules demonstrate that this Government can draft good tax legislation when it listens to tax professionals and the taxpayers affected. I sincerely hope that it takes note of the distress this has caused and delivers proper advance consultation for the future. |
“It’s a shame that so many entrepreneurs have had to go through a period of massive uncertainty up against a tight deadline because the Treasury rushed through a proposal and didn’t fully consider the impact on small and medium sized businesses.
“Due to the delay in releasing draft legislation showing how the new relief will operate, many owner managers have begun or pushed forward the process of selling off their companies in order to secure existing reliefs before 5 April 2008, and have incurred costs in doing so at a time when the credit crunch has lowered company valuations overall. Many will now feel it better to abandon ‘fire-sales’ but others may feel that having started the process, they have to see it through. Once you take the decision to sell, it’s not something you can easily stop.”
In response to pressure from the business community, the Chancellor announced a relieving measure for small businesses in January 2008. The new entrepreneurs’ relief is to be introduced on 6 April 2008 and, subject to certain conditions, will mean that business asset owners can effectively achieve a 10% tax rate on the first £1 million of gains. Draft legislation issued today detailed how the new relief will operate.
As a result of representations, some sensible transitional provisions have been included. For example, gains realised on the sale of a business some time ago, but frozen and invested in Enterprise Investment Scheme (EIS) shares, will qualify for the relief when they are “unfrozen” on sale of the EIS shares after 6 April 2008.
Lisa outlined two new planning issues that business owners will need to consider.
“Business owners selling their company by share for share deals will have to elect to pay CGT in relation to the year of exchange if they are not going to work in the purchasing company and hold at least 5% of its shares.
“The rules may encourage family companies to have a number of family members as non-executive directors. However, caution is needed - if they are not careful with the capital contributions that each shareholder makes, they could fall foul of the new income shifting rules when dividends are paid out.”
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For further media information, please contact:
Jason Gowar, PR Manager, 020 7065 0573, jason.gowar@uk.pkf.com
Jane Murray, PR Executive, 020 7065 0135, jane.murray@uk.pkf.com
For general enquiries please contact our switchboard on 020 7065 0000
Notes to Editors:
- PKF is a leading firm of accountants and business advisers with more than 1,800 partners and staff operating in 23 offices in the UK mainland firm, a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk.
- PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
- PKF (UK) LLP is a member of PKF International which is an association of legally independent firms with more than 14,650 people operating in 119 countries around the world.
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