The importance of Entrepreneurs' Relief to small and mid-size quoted companies
Entrepreneurs’ Relief (ER) was established by the Labour Government in 2008 and significantly expanded by the Conservative Government after 2010. In the QCA’s 2020 Budget Representation, we stress the importance of ER and urged the Government to maintain the relief due to the importance of it to small and mid-size quoted companies.
The relief is used to reward individuals for enterprise and encourages equity investment in smaller, growing companies, such as those quoted on AIM and NEX Exchange. It has helped these companies attract the necessary talent and investment to grow and create more productive employment, which is essential for the UK’s economic growth.
Following the extension of ER to shares acquired through Enterprise Management Incentives (EMI) options in the Finance Act 2013, the relief is applicable to more than just high-net-worth business owners and also applies to a wider base of hardworking employees based throughout England, Scotland, Northern Ireland and Wales. The removal of the relief, therefore, will penalise everyday workers receiving EMI options in their companies.
EMI is used to level the playing field between growth companies and their larger counterparts. It is specifically targeted at smaller companies with assets of £30 million or less and enables these companies to grant share options to key employees on a tax-advantage basis. This helps growth companies attract and retain the best talent, as well as increasing employee share ownership.
We continue to urge the Government to maintain the relief, or, at a minimum - and as promised in the Conservative manifesto - conduct a review where stakeholders can provide their views on the effect that any change may have. This will allow the Government to make an informed, evidence-based decision, rather than making a drastic change that could have far-reaching implications.