Northern Ireland's entrepreneurial culture takes a hit as Chancellor announces reform to Entrepreneur's Relief

Northern Ireland’s strong entrepreneurial culture has continued to flourish, with hubs like the Ormeau Baths springing up
Rob Heron

CHANCELLOR Rishi Sunak's first budget was deliveted in the context of a rapidly changing economic picture and just Covid-19 was declared a pandemic by the World Health Organisation. This leads us into largely uncharted territory, and it seems 2020 will become the year of Covid-19 rather than Brexit, as had been anticipated.

For the business community, the announcement of a strong stimulus package to help keep our economy moving while the Covid-19 crisis progresses will be extremely welcome. Among the other measures that will draw the largest interest from Northern Irish businesses were the much welcome £215m increase to the executive budget, allowing NI to set its own priorities with these funds, and reforms to the Entrepreneur's Relief (ER).

The current ER regime, introduced in 2008 by then-Chancellor Alistair Darling, allows company founders to pay a reduced capital gains tax rate of 10 per cent up to £10m compared to the 20 per cent rate that would otherwise apply.

The Chancellor, in his speech, quoted criticisms of ER, noting concerns that it was only encouraging one in 10 entrepreneurs to start up. However, we should not forget that the original aim of the relief was instead to encourage those successful entrepreneurs to stay in the UK and pay tax on their success, and then to reinvest and continue to contribute to the UK's growth. During this time, Northern Ireland's strong entrepreneurial culture has continued to flourish, with hubs like the Ormeau Baths springing up.

Since it was introduced the cost of the relief has increased from £427m in 2008-09 to £2.7 billion. While this ‘cost' number has been talked about a lot over the last few weeks as this reform was mooted, there was little mention of the return to the Exchequer as a result of job creation due to ER.

Through the EY Entrepreneur Of The Year, I've seen first hand that there are very few one-time entrepreneurs. According to our EoY alumni survey, over 80 per cent of entrepreneurs have started more than one business.

The Chancellor will be hoping that removal of this allowance for the most successful will not encourage them to leave the UK thereby paying no tax. This would not only risk losing the 10 per cent they would otherwise have but perhaps more importantly risks losing the value created by the serial entrepreneurs in their future ventures. The move also now places entrepreneurial relief here in the same field as the Republic of Ireland's regime.

With the UK facing very real threats to economic stability, everything we can do to retain those creative minds who drive innovations and create the much-needed jobs that keep our economy moving should be done.

In my mind, a preferable reform would have been a £1m limit per separate venture rather than per life. This system would reward serial entrepreneurs while also ensuring that the exchequer receives a benefit of the sale from ‘one time' entrepreneurs.

With the new restrictions to Entrepreneurs Relief, Northern Ireland's business community will hope that some of the additional £215m allocated tot he region by the Chancellor will be used to help support them as they face challenges unlike any they have had to contend with previously.

:: Rob Heron is Northern Ireland partner lead for the EY Entrepreneur Of The Year initiative

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