On 10 February 2021, Mishcon The Leap alongside The Entrepreneurs Network and The APPG for Entrepreneurship, co-hosted a virtual drinks event for founders and entrepreneurs of fast-growth businesses, as well as entrepreneurial advisors. The theme for the event was "how to ensure the UK has the best tax system for entrepreneurs".
Partner and Chair of Corporate Kevin McCarthy provided the opening remarks. He was joined by Gary Richards and Andrew Goldstone from Mishcon's Tax, team as well as Tom Clougherty (Head of Tax at the CPS), Shalini Khemka (E2E) and Henry Whorwood (Beauhurst), who spoke about their respective campaigns on the proposed changes to Capital Gains Tax (CGT).
The evening then opened up to a discussion, led by Lord Leigh of Hurley, Co-Founder and Senior Partner at Cavendish Corporate Finance, which highlighted entrepreneurs' concern that the UK retained a tax landscape that encourages and does not deter high growth businesses.
There is no certainty that CGT changes will come on 3 March. Indeed the Chancellor may be happy for speculation to encourage owners to bring forward disposals, even at today's current CGT rates, to bring in tax next January.
Even if deemed politically or economically premature to raise rates next month, by November 2021, the state of the economy may be clearer. Moreover if the manifesto commitment – made in very different circumstances – not to alter the main rates of income tax, VAT and national insurance "can't" be departed from, CGT and corporation tax are the obvious targets (together, perhaps, with property taxation). While the reports on the UK tax systems by both the Office for Tax Simplification and Institute for Fiscal Studies understate the skills and value of genuine entrepreneurs, some of the perverse outcomes of the current tax rules may not survive the need to improve the public finances post COVID-19 – and may not be politically palatable.
Even so, if you are planning to accelerate a disposal, it is not long to 3 March so you need to ensure you can carry it through. If linked to a sale, your buyers also need to be comfortable with the planning.
If you are planning to accelerate a disposal irrespective of selling to a third party (for instance using a trust) to avoid being "over a barrel" when it comes to negotiating as the deadline approaches, you will need to have funds to meet the "dry tax charge" in January 2022. If you (or the trustees) can effect a sale by January 2022, that transaction could provide the cash to meet the tax, but the full value of your business may not then be apparent.
Our judgement is that some kind of more targeted relief for entrepreneurs is likely to be created. It is not clear what this will be – potentially a return to "taper relief" accruing over a longer period, or linked to meeting quantifiable measures (such as headcount, expenditure on R&D and intellectual property), or even perhaps only on a proportion of founder's shares to encourage them to build, rather than exit completely too quickly. One thing is certain with tax – "the status quo never lasts long".
If you are interested to hear more about the pre-Budget pre-sale tax structuring mentioned above, please contact Andrew Goldstone.
For broader tax advice, including around investments and disposals, please contact Gary Richards.
To discuss anything else concerning founders, shareholdings, investments or disposals, please contact Kevin McCarthy.
Mishcon The Leap is an active network and programme of events for some of the most exciting fast-growth businesses in the UK. The Leap brings together business founders and leaders through a series of events, workshops and content, creating a community of like-minded individuals who can learn from each other and share their experiences and ideas on how to shape the future of their industry and society.
A Leap partner since launch in 2015, The Entrepreneurs Network is a think tank for the ambitious owners of Britain’s fastest growing businesses and aspirational entrepreneurs. Through research, events and the media, it bridges the gap between entrepreneurs and policymakers to help make Britain the best place in the world to start and grow a business. They are also the Secretariat of the APPG for Entrepreneurship, set up to ensure that Parliament is kept up-to-date on what is needed to create and sustain the most favourable conditions for entrepreneurship.