Entrepreneurs’ Relief amendments don’t go far enough

Draft legislation which has been introduced by the Government, is a welcome step but, does not go far enough to support entrepreneurship and business start-ups in Northern Ireland, according to the Association of Chartered Certified Accountants (ACCA).

In July the Government released draft legislation of the Finance Bill 2019 which will enable investors to obtain Entrepreneurs’ Relief (ER) where their shareholding is diluted as a result of raising funds.

The draft legislation aims to preserve ER on gains which have been accrued prior to a dilution of shareholdings, through the raising of external finance. 

The issue of dilution is especially relevant to technology and life science companies, which are growing in Northern Ireland, where finance is obtained via successive rounds of venture capital fundraising. 

Currently if an individual’s shareholding falls below 5% after issuing new shares, any entitlement to ER may be lost. 

While welcoming the proposed legislation Ciaran Fitzpatrick, ACCA Ulster Branch and Director at Maneely McCann, has said that it does not go far enough to cultivate entrepreneurship. 

Commenting he said, “The current provision for ER has disincentivised many individuals and businesses from exploring funding options which would result in diluting the original shareholders.  The Government’s paper acknowledges ER was introduced to incentivise and reward entrepreneurs who, with significant initiative and risk, play a key role in building and growing a business.  The objective of the proposed changes is to ensure shareholders are not penalised because of how a company’s financing is structured in delivering a company’s growth plans.”

“The entrepreneurial spirit of founding a company and growing a business should be encouraged.  ER plays a vital part in incentivising the founding shareholders, and the risks they take, by rewarding them with a generous tax relief. Shareholders who are faced with the predicament of raising external finance to grow their business faster should be able to do so without the detriment of losing ER.”

“The proposed ER changes is a watered down solution to the problem.  Whilst it brings about a welcome change to the current ER rules, it stops short of a complete solution to incentivise entrepreneurs to maximise their company’s growth potential.”

“While the 10% rate can be banked on gains arising immediately before the dilution event, ER will not apply to any gains on a future sale of shares.  Such future gains will be taxed at the normal capital gains tax rates. Shareholders with an eye on ER, are incentivised to stall growth or sell their company prematurely before maximising the potential of their business. This does not support the potential of their business nor the long-term contribution that it could make to the local economy and employment.”

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Monique McKenzie

E: Monique.McKenzie@accaglobal.com

Tel: 020 7059 5030
Mobile: 07725613447

Twitter: @ACCANews

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants, offering business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

ACCA supports its 208,000 members and 503,000 students in 179 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 104 offices and centres and more than 7,300 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.

ACCA is currently introducing major innovations to its flagship qualification to ensure its members and future members continue to be the most valued, up to date and sought-after accountancy professionals globally.

Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. More information is here: www.accaglobal.com