The reforms to IR35, also known as off-payroll working started in April 2021 which now apply to the private sector. It has enabled claiming Entrepreneurs’ Relief for businesses in the UK.

With this move, large and medium-sized private sector businesses are now responsible for determining the IR35 status of their contractors. Those who fall under the categories of IR35 must have Income Tax and National Insurance Contributions (NICs) deducted at the source. 

What Happens With the Reform?

This reform has caused some contractors to consider the possibility of liquidating or selling their companies, as it is affecting the private sector. With this reform, it has become a new burden for businesses as it has now become expensive and complex to hire contractors, which tends to reduce the profitability of these businesses. 

There is one option you can consider is claiming Business Asset Disposal Relief, if IR35 reform has impacted the viability of your business to this extent, which is previously known as Entrepreneurs’ Relief.

What is Entrepreneurs’ Relief?

In the United Kingdom, entrepreneurs selling their businesses can claim entrepreneurs' relief. Entrepreneurs’ Relief (called Business Asset Disposal Relief since 6th April 2020) is a reduction on Capital Gains Tax for the disposal of qualifying business assets, applied when selling or liquidating all or part of a company.

This is a lifetime allowance of  £1 limit on the amount of relief you can claim.  It started on the 11th of March 2020. Within this limit, however, you can claim as many times as you would like.

In addition, the relief allows you to apply a reduced rate of 10% capital gains tax (instead of the usual 20% for higher rate taxpayers) on the profits you make when you sell assets that qualify, which makes it one of the most attractive tax benefits available.

Who Can Claim the Entrepreneurs’ Relief?

You may claim Entrepreneurs’ Relief on material disposal of business assets which consist of: 

a) All or part of an unincorporated business, if both of the following apply for a minimum of 2 years up to the date you sell your business:

• you are a sole trader or a business partner
• you have owned the business for at least two years 

b) Shares or securities in the shareholder’s personal company, if both of the following apply for a minimum of 2 years up to the date you sell your shares:

• You are an employee or officeholder in the company 

• You are holding the above share capital for the whole of the qualifying period 
• The company’s main activities are in trading, or it is the holding company of a trading group

Other disposals may qualify for the Entrepreneurs’ Relief, which includes- disposals of assets owned by the individual but used in their personal company or a partnership of which they were a member (e.g. a warehouse). There are also different rules for shares which are from an Enterprise Management Incentive (EMI).

For more information and to get through this process, contact your local accountants in the UK.

Contact Taj Accountants

Our specialist Accountants in London with their years of experience working with thousands of contractors can provide you advice and tips on getting started as a contractor. They can also help you save tax and improve cash flow. So, contact us and get on board. 

DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you contacting Taj Accountants for further assistance.