capital gains tax entrepreneurs relief

Entrepreneurs’ Tax Relief: Everything You Need To Know

25/03/2021Tax Issues , Tax Saving Tips

Establishing a new business is never easy, you need to face a lot of problems while starting a new business.  Being a smart entrepreneur, you should try to reduce your expenses and increase your earnings by opting for efficient strategies. This is where you need to know about Entrepreneurs’ Tax Relief. You can use this relief to lower down your Capital Gains Tax (CGT) at the rate of 10% for the business assets that are sold or disposed of.


Entrepreneurs’ Tax Relief- An Overview:

As a business owner, you might wish to sell or dispose of your business due to your hectic routine and many other reasons. In this case, you can claim an allowance to receive a reduced tax rate on your sold assets. This allowance is known as Entrepreneurs’ Tax Relief.

Entrepreneurs’ Tax Relief

This relief can help you to boost your financial gains by reducing the charges of CGT on the profit you made out while selling your business assets. Nowadays it is renamed by HMRC as Business Asset Disposal Relief.


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How to Claim and How much to claim?

If you’re a business owner, this relief is one of the most captivating tax benefits for you. You can claim Entrepreneurs’ Tax Relief, which is now known as Business Asset Disposal Relief up to £1 million in your lifetime. If your claim is within the threshold of  £1 million, you can claim it multiple times until you reach the limit.

You can claim this relief in two ways:

  1. Self Assessment tax return
  2. Completing the Section A form of the Helpsheet Business Asset Disposal Relief

Key Takeaway: If you have disposed of your business in 2010/20, the deadline to claim for this relief is 31 January 2022.


Eligibility for ER:

Individuals are eligible for Entrepreneurs’ Tax Relief. This relief is not available for companies. To qualify for this relief, you need to sell qualifying assets, along with fulfilling other requirements.

You are given a two years qualification period to qualify for this tax relief. For qualification you must follow the below criteria:

  • You’re a sole trader and an employee
  • You own 5% share and voting rights
  • You have not crossed the £1 million lifetime limit

This criterion differs if you sold out your shares or you’re selling your whole/ part of your business. Though, both cases qualify for the EU, you should know the difference.


Seems difficult? We can make it easy! We have a team of professional tax experts for your assistance.


How Does ER Work?

The process is quite simple and easy. Whenever you sell an asset, you are liable to pay tax on it. This tax relief minimizes the amount of tax you pay in terms of Capital Gains Tax (CGT).


Assets that qualify for Entrepreneurs’ Tax Relief:

Including the tangible assets that you sold or disposed of, your shares and securities are also eligible for this relief. However, your investment and personal assets are not eligible for this relief.


How can You work out Entrepreneurs’ Relief?

You can calculate this tax relief by following the below steps:


  • Add all your capital gains and calculate your CGT
  • Subtract it with your tax-free allowance of CGT
  • Pay 10% from the remaining amount and the rest is yours

Entrepreneurs Tax Relief uk


Quick Wrap Up:

We hope you have got enough information about Entrepreneurs’ Tax Relief. You should keep in your mind that the rules and regulations may vary as they change with each passing year. Therefore, you must be up to date with the latest policies and legislation by HMRC.  As this will be saving you thousands of pounds.


For further help and assistance, don’t hesitate to contact us for getting expert advice from our qualified chartered accountants in Croydon

Related post

business asset disposal relief
Business Asset Disposal Relief – Guide for Beginners!

22/10/2021Business , Finance

The Entrepreneurs’ Relief has been renamed Business Asset Disposal Relief (BADR) since March 2020. It minimises the capital gains tax rate to 10 percent on shares. This makes the United Kingdom tax heaven for business persons. So, if your looking for a significant source to know about BADR, you just have found the right source. We will let you know about: What is BADR, and who is eligible for it? What are the rules of BADR? How much and How to claim BADR? So, let’s start!   Our tax professionals can assess your situation and let you know where you stand. We suggest improvements (if needed) that will get you closer to meeting the Business Assets Disposal Relief requirements. Contact us now!   What is Business Asset Disposal Relief (BADR)? When the business owners dispose of relevant assets of their business, a BADR is a valuable CGT relief that is available to them. It is an important area of tax planning, and it can minimise the tax rate on the first £1 million of eligible capital gains to 10 percent. Many business owners should confirm their eligibility for it as a part of their exit planning.   What are the BADR Rules? The rules for business asset disposal relief are as follows: There should be some proof of working in the company (no minimum hours or salary requirements). Non-executive directors & secretaries of the company will be counted as officers. A document employment contract provides evidence of employment and will help you if HM Revenue & Customs challenges your claim.   Who is Eligible for Business Asset Disposal Relief? It is usually available to: Company directors and employees at the time of disposal of shares in their personal trading enterprise. Trustees when making disposal of their company assets, in certain cases. Company employees and directors who sell qualified shareholdings that are earned under an EMI (enterprise management incentive) share option scheme. Sole traders or partners at the time of selling the entire or part of their trading enterprises.   How Much BADR Can you Claim? Business Asset Disposal Relief is available for qualifying gains up to the lifetime threshold that is applied when making disposal. For qualified disposals made on or after (March 11, 2020), the lifetime threshold was minimised to £1 million. If you surpass the lifetime limit, then excess gains will be taxed at the usual rate of capital gains tax (CGT).   Turn to CruseBurke for managing and recording finances and for claiming BADR! We have a team of skilled accountants who will handle everything with HMRC on your behalf. Contact us right away!   How do you Claim BADR? You must claim the BADR to HM Revenue & Customs for the year in which gain arises. It must be claimed by the first anniversary of (January 31) following the tax year of disposal. If you fail to do so, then you will not be eligible for business asset disposal relief. For BADR, you can claim via a Self-Assessment tax return. You can also claim by making a standalone claim, and usually, most claims are made on personal tax returns.   Conclusion We will conclude our blog by saying that a business asset disposal relief is not automatic; you have to claim it at the right time mentioned above. Otherwise, you will not qualify for this relief. Therefore, to be on the safe side, it is better to hire a professional for claiming BADR tax relief on your behalf.   Looking for a professional to claim BADR? Then, feel free to contact us! We are a team of professionals that will handle everything with HMRC on your behalf and help you claim what is rightfully yours! So, contact us right away!  

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