MEASURES to raise the value of entrepreneurs’ relief in Tuesday’s emergency budget will encourage the region’s business owners to retain profit within their companies, says a leading accountant

MEASURES to raise the value of entrepreneurs' relief in Tuesday's emergency budget will encourage the region's business owners to retain profit within their companies, says a leading accountant.

Raising the entrepreneurs relief limit to £5million means that, with careful planning, the relief could be worth up to £900,000 a year where it was worth just £80,000 in 2009-10.

"It seems that the combination of recent rises in income tax, imminent reductions in corporation tax and the increase in entrepreneurs' relief adds up to an environment where there is more reason than ever to retain profit and grow value in a trading company," said Charles Olley, tax partner at Price Bailey Chartered Accountants.

Mr Olley added: "The increase in entrepreneurs' relief lifetime limit to £5m from June 23 will obviously be welcome for some. Note that the old relief limits of £1m pre-April 6 and £2m pre-June 23 still apply for gains realised before 23 June 2010. So businesses can't go back and re-work those old gains to grab more relief."

Mr Olley warned that the toughest test for entrepreneurs' relief could would be the trading requirement, and that businesses aiming for an exit with entrepreneurs' relief would have adhere to the strict definitions.

He said: "The taxman's definition of trading may not be the same as a business's point of view. Last year any difference of opinion could at worst have meant an argument over £80,000. Not pleasant, but manageable by most with a gain of £1m.

"Now any disagreement could be over £900,000 - a much more serious matter.

Mr Olley said that Price Bailey expects to see an increase in the use of the non-statutory business clearance application process, and that HMRC could take a tougher line now that there are increased stakes.

INFORMATION: Price Bailey's free budget report uncovers some of the key measure as well as the less publicised changes that are most likely to affect your business or your personal finances. Contact 0800 434 6460 or email laura.kilroy@pricebailey.co.uk.