Entrepreneurs’ Relief is a grift—and does nothing for Britain. Scrap it.

I know a thing or two about business. My company has been in the Financial Times 1000 fastest growing businesses not once (2022), but twice (2024). It's one of the 100 very fastest-growing companies in the UK, so - perhaps unlike many of the entrepreneurs who just wrote to Rachel Reeves to demand a tax break at the expense of everyone else - I am positive about the UK's future and believe our best days are ahead of us.

But Britain’s tax system has a dirty little secret: Entrepreneur's Relief.

If you're a nurse you pay a marginal rate of tax of 28%. If you're a teacher you may well be paying 42%, and if you are a doctor with two kids working in A&E you can pay an eye-watering 72% (see Dan Neidle’s excellent analysis for more).

On the other hand, if you are an IT contractor, you can get away with paying just 10% rate of tax - if you meet a reasonably competent accountant. Why? Because of Entrepreneur's Relief (now called Business Asset Disposal Relief or BADR). Read any contractor forum: it’s not only a dirty secret, but a pretty open one.

Here's how you do it. Leave your workplace, set up an off-the-shelf limited company, expense absolutely everything and then after a few years (ideally just before you retire), wrap up that company. At this point you claim BADR and pay a flat rate of tax of just 10%.

In other words: Say you are a well-paid IT contractor on £200,000. Instead of paying yourself all your earnings as a salary or taking out dividends, pay yourself only a small salary up to the tax threshold1 and keep the rest of the money in your company. Keep doing it for five years, until there's a cool million sitting in your company account. Then wrap it up, claim BADR, and pay just £100,000 worth of tax, rather than the £318,000 you would have paid if you paid yourself in dividends.

That's it. 

Sign our petition to Rachel Reeves: Scrap the disastrous two-child benefit cap, and close the Entrepreneurs Relief loophole to raise the money.

Now, you might think with a pro-business name like Entrepreneur’s Relief you'd need to show your activity has contributed to the growth of UK PLC.

You don't.

You can claim Entrepreneur’s Relief without creating a single new job. That's right - not one job. You also don’t need to make any investment in the UK economy. You don’t need to demonstrate that you’ve benefited the UK economy in any way whatsoever.

And it gets worse. You can claim this relief even if you end up actively damaging our economy. If you’ve left your job in a high-productivity company (one like mine) and instead create a one-person company and do absolutely nothing to invest in your company or your skills, you are reducing UK productivity. It’s no wonder that our productivity is an international joke when the tax system incentivises low-productivity micro-companies against fast-growing startups and SMEs.

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Reports suggest that Chancellor Rachel Reeves is planning to do the right thing and close this ridiculous, self-defeating loophole. But now we hear that “over 1,500 business people” have signed a letter to Reeves urging her to keep in place. So let’s consider the counter-argument - that abolishing BADR will disincentive entrepreneurs from taking risks and scaling up their businesses. Or, in their own melodramatic words, that abolishing it “risks severely undermining the entrepreneurial spirit that has been a driving force behind the UK’s economic growth and innovation”.”

Bullshit.

If BADR is abolished, then in the event you sell your company, you will still pay a lower rate of tax than everyone else who is employed because selling your shares is taxed at a lower rate than income tax.

Instead of paying the 45% top rate of tax, you will pay capital gains tax, currently 20% for higher rate taxpayers. There is talk of this rising to 28% (again, a significant tax break against the income tax that everyone else pays). 

“The people who work for me are the real wealth creators”

BADR is a one million pound low-tax allowance for a very small group of people. For any entrepreneur who actually adds to the UK economy and creates significant wealth, it is a distraction. If you create a business worth £100 million, you will pay £19.9 million worth of tax with BADR, versus £20 million if BADR is abolished. Pocket change for the centimillionaires. One of the main beneficiaries of BADR are one-person ‘businesses’ (sorry - you aren’t a business) who add very little value to the UK economy.

The UK needs to be competitive internationally - and we need to attract talent. We should have a pro-business vibe. But a lot of hostility to entrepreneurship is driven by a sense there are different rules for some. The taxes that matter are corporation tax, national insurance, business rates, all of which are not going up. The argument that I’m going to stop investing in my companies because I may - in the future when I sell - pay a ghastly 28% tax rather than 10% tax is ridiculous.

I’m sorry to criticise fellow business leaders who signed the open letter, but a minor change to the tax you pay when you exit your business (and therefore are no longer creating wealth) is going to help patch up our failing public services which your employees rely on.

Wealth is collective. The people who work for me are the real wealth creators: they need a working NHS, transport infrastructure that can get them to work on time, and services such as excellent schools so the next generation can contribute to our economy. As a business leader, I rely on the rule of law so that the contracts we sign are enforceable. All this costs money and someone has to pay.

I’m reminded by the wise words of Guy Hands, one of the UK’s most successful investors. In an interview with the Daily Telegraph he “deeply regretted” moving to Jersey for tax reasons because it was a “disaster” for his business. He said: “Moving to Guernsey greatly impacted my ability to build and maintain strong relationships with contacts, on which my success in business relied. I lost the flow of the market… For me it was a disaster.” Tax isn’t everything.

I run one of the most successful businesses in the UK. I’d rather ensure we tackle child poverty than keep an unfair tax break, because you can only create wealth in a society that works.

The UK is a successful economy. For that to continue, we need strong public services. Rachel Reeves should abolish BADR, and those who are clamoring for this tax break should read the room. 

Sign our petition to call on Rachel Reeves MP, the Chancellor of the Exchequer, to end the two-child benefit cap.