What Is Entrepreneurs Relief?
The topic of Entrepreneurs’ Relief has recently come up in the Chancellor’s Budget and has been a hot tax-related topic for some time. It works by reducing the amount of Capital Gains Tax an individual must pay when they sell their business shares (either all of them or some of them).
Entrepreneurs’ Relief offers a favourable tax rate of 10% on the value of the shares sold. The number of times an individual can claim is unlimited and up to £1 million of relief can be received during a person’s lifetime (before 6th April 2020 the lifetime limit was £10 million). The rules also apply no matter how much income tax a person pays.
Who can claim Entrepreneurs’ Relief?
To claim Entrepreneurs Relief, shares must have been sold or otherwise disposed of within two years of the end of the tax year.
The following conditions must also be met:
- The individual selling/disposing of shares must own 5% or more of the company’s share capital, which must give them the right to at least:
- 5% of the votes
- 5% of the company’s distributable profits
- 5% of the net assets on winding up
- The individual selling/disposing of the shares must also be an employee or officer of the company, and they must have adhered to all conditions of their contract in the two years immediately before the disposal
- The company must have been trading in the 24 months before the date on which the shares were sold.
What happens if the company is being sold altogether?
If the company is being wound up completely, and won’t be trading going forward, Entrepreneurs’ Relief will be applicable if:
- Assets that are distributed are taxed as a capital distribution and not as income
- The distribution occurs inside three years from when the company stopped trading
- All conditions are met in the 24 months prior to the company being wound up
What can I do if my company doesn't qualify for Entrepreneurs’ Relief?
If you don’t qualify for Entrepreneurs Relief - or your company doesn’t - then you’ll need to work out your capital gains liability exactly as you would when disposing of any other asset.
How to work this out:
Begin by ascertaining how much the sale of your business has given you in “profit”. So, take the sales price, and subtract the amount you paid for it. Also don’t forget to take into account any investments in the company, and any costs pertaining to the buying or selling of it. Once this is done, you need to then deduct your personal allowance. For 2019-20, individuals in the UK can earn up to £12,000 (£11,700 in 2018-19) in capital gains without paying tax, with couples also being able to pool their allowances. From 2020-21, the Capital Gains Tax allowance is set to go up to £12,300. This again means individuals will pay CGT on any gains that take them over this threshold - currently 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers. It’s worth remembering too that your capital gain needs to be included when calculating your tax bracket for the year. This means that even if you’re a basic rate taxpayer currently, a large capital gains of any substantial size can bump up your tax bracket so you end up paying the higher rate.
Now may be a good time to consider R&D Tax Credits
Whilst you’re still a company owner or majority shareholder, it’s worth remembering that even the smallest of innovation projects could attract government assistance. One that many businesses still haven’t heard about (despite it being around since the early 2000s) is R&D Tax Credits.
R&D Tax Credits are offered to all UK businesses who have undergone activities in research and development. It could be that they’ve created a new product, process or service or they’ve upgraded an existing one. The key point is that an element of scientific and/or technological uncertainty has been addressed, and that money has been spent out on activities involving some kind of financial risk.
The different types of projects that can be claimed for are many and varied. It doesn’t matter what industry your business is in or how much money has been spent (there’s no upper or lower limit). The eligible costs are also many and varied, including certain consumables used up in the R&D process like fuel and heat. They also include staff wages, payments made to freelancers/contractors and money spent out on testing and prototypes.
More about the relief and how to apply can be found on our R&D Tax Credits page.
Why use the Tax Cloud portal?
With separate areas for businesses and accountants, the Tax Cloud portal will guide you through the application process from start to finish. Additionally, it includes the Tax Cloud calculator that can accurately provide an estimate of the corporation tax savings that you may receive from HMRC following a claim for R&D tax relief.
It's also based on results only pricing, meaning your fee for using the Tax Cloud is only ever a maximum of either 2.5% or 5% of your R&D Tax Credit award. The way it works is that claims of over £200k will incur a fee of 2.5%, but claims up to £200k are at a 5% fee rate. It’s a clear and transparent way of doing things, and fees are subject to a minimum fee of £1000 + VAT.
More about the benefits of the Tax Cloud portal
There are many benefits to using our online R&D tax relief claims portal, with key ones being:
- No upfront fee
- Nothing charged if your company doesn’t qualify
- Fees only require paying once your claim has been processed by HMRC
- We are happy to answer any questions from HMRC at no extra cost
- We prepare your amended Company Tax Return (CT600) for free as part of our claim process - this is something other providers generally don’t offer
Contact us at Myriad Associates
Myriad Associates is the name behind the Tax Cloud portal. We deal solely with R&D tax relief claims and our accountants and specialists have over 20 years’ experience.
Call us today on 0207 118 6045 or use our contact form.
- Submitting R&D tax claims since 2001
- 100% success rate
- Over £100m claimed and counting
- Industry leading specialists
- In-house technical, costing and tax experts
- Member of the Research and Development Consultative (RDCC) committee
Meet some of the team behind Tax Cloud