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July 31st 2014 / BY: Wisteria

Guidance on Entrepreneurs’ Relief from Tax Advisors

Tax advisors are specialists with advanced training and knowledge of tax law. They ensure that their clients are paying the correct but lowest amount of tax possible by legally lowering the tax liability and providing their clients with financial and tax-related advice. The main tasks of tax advisors usually include staying up to date on the latest tax requirements, consulting tax law handbooks and looking for bulletins regarding common and typical tax procedures.

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There are a number of tax requirements that need to be fulfilled while registering a company and after the company formation. Tax requirements usually include registering for Value Added Tax (VAT), registering as an employer through PAYE registration and completing and filing a corporation tax return.

In addition, it is a legal requirement as a director of a UK company to file a UK self-assessment tax return. As a UK resident director this would include income and gains. Capital Gains Tax is the tax on the profit or gain made when an asset is sold or disposed of.

There are certain reliefs to reduce the Capital Gains tax rate. One of these reliefs is Entrepreneurs’ Relief. Entrepreneurs’ Relief reduces the amount of the Capital Gains Tax on a disposal of qualifying business assets. Individuals or trustees of a settlement can claim entrepreneurs’ relief. The claim may be amended or revoked within the time limit for making a claim. It is necessary to remember that a number of conditions need to be satisfied through the ‘qualifying period’.

The qualifying conditions depend on the type of disposal made by the individual. There can be disposal of the whole or part of the business, disposal of assets following cessation of the business and disposal of shares in or securities of the personal company. Entrepreneurs’ Relief may be available to trustees of settlements who dispose of trust property that consists of either assets used in a qualifying beneficiary’s business or shares in a qualifying beneficiary’s personal trading company.

For qualifying disposal, the amount of relief available depends on the following:

  • the extent to which gains relate to disposals of business assets
  • the total amount of relief given on any previous qualifying disposals

Any kind of disposal which gives rise to a capital gain will qualify for relief if the relevant conditions are met. The disposal may be a sale, a gift, a transfer or where a capital distribution is received in respect of shares in a company and where a capital sum is derived from the asset. Entrepreneurs’ Relief is not available against gains arising on the disposal of investment assets held by a business.

It is usually advisable to consult a business accountant and tax advisor after registering your company. A few company formation agents offer an advice meeting with their business accountant and tax advisors after the company formation process has been completed.

Wisteria Chartered Accountants, Business and Tax Advisors provide a variety of tax services for companies and individuals.  For tax advice, information on our services or details on setting up a company if you are a non-UK resident, please contact 0208 952 0140 or email info@wisteria.co.uk.