Selling wave of UK independent veterinary clinics brewing

Looming tax change could benefit corporate consolidators

Published: February 03, 2020
By Ross Kelly

HM Treasury Twitter photo
Sajid Javid, chancellor of the exchequer, is scheduled on March 11 to present the United Kingdom government budget, which is anticipated to propose changes to the capital gains tax break known as Entrepreneurs' Relief.

Veterinary practice consolidators in the United Kingdom are eyeing a fresh batch of acquisition opportunities, created by government talk of eliminating or reducing a generous tax break for small business owners.

An association representing independent veterinary practices is warning owners not to panic and rashly sell their businesses to consolidators on the cheap.

The potentially doomed benefit, dubbed Entrepreneurs' Relief, currently caps at 10% the amount of capital gains tax that owners must pay when they sell their business, up to a £10 million (US$14 million) limit. The U.K. taxes other investment gains, such as from the sale of stocks or bonds, at 20%.

IVC Evidensia, the largest U.K. consolidator — with more than 900 practices in Britain and mainland Europe, including the Independent Vetcare brand — told the VIN News Service that it is being approached by independents looking to sell now, for fear of missing out on the tax break.

"We have indeed noticed a pick-up in enquiries, and practice-owners (and their advisers) have mooted that changes to Entrepreneurs' Relief are affecting their decision-making," Dr. Keith Chandler, director of mergers and acquisitions for IVC Evidensia, said via email.

(In the U.K. and elsewhere, the term "mooted" is used to indicate something discussed or suggested.)

Chandler added: "We expect there to be continued interest in selling practices because of the buoyant pricing in the marketplace and the potential changes to Entrepreneurs' Relief."

The tax break was introduced in 2008 to encourage innovation and economic growth. It since has come under attack from both sides of the political divide for costing the nation billions of pounds in tax revenue.

The benefit's future began to look shakier in late November, when Britain's Conservative government pledged to "review and reform" Entrepreneurs' Relief amid an admission that some tax policies "haven't fully delivered on their objectives."

Announcement of a change could come on March 11, when Sajid Javid, chancellor of the exchequer, is due to hand down the government's annual budget for the nation. Any policy change would have to be approved by Parliament.

Earlier this month, IVC Evidensia published a post on its website alerting practice owners about the potential changes and encouraging those considering selling to decide swiftly. The company's website since has been redesigned, and the post no longer is visible.

The Federation of Independent Veterinary Practices (FIVP), a nonprofit association, suggested that business owners should tread carefully.

Jacqui Garrett, an FIVP spokesperson, said by email, "Although the Conservative government have pledged to review Entrepreneurs' Relief, no definitive plans or timings have yet been announced."

She said the FIVP believes it unlikely that the benefit would be suddenly withdrawn outright, without alternative relief or a phased withdrawal put in place.

"The Federation is concerned that large corporates may be using the fear of the potential withdrawal of Entrepreneurs' Relief to encourage owners of independent veterinary practices to sell up at reduced prices," Garrett said. "The Federation encourages members to remain independent, and any owners thinking of selling should seek professional advice."

Corporations including IVC Evidensia, CVS Group and U.S.-based Mars Inc. own at least half of Britain's veterinary practices, by FIVP estimates. A spokesperson for Mars Inc.'s U.K. operations, Linnaeus Group, declined to respond to questions from VIN News, and a spokesperson for CVS did not reply to a request for comment.

Catherine Gannon, founder of London-based law firm Gannons Solicitors and an expert on U.K. taxation, said any changes to Entrepreneurs' Relief could take many forms.

Options available to Javid, she said, include scrapping the benefit altogether or taking less drastic action, such as halving the maximum amount eligible for tax relief to £5 million from the current £10 million.

As for timing, Gannon said Javid could choose to make any changes effective as of March 11 when the budget is issued, or perhaps from the first day of the British tax year, April 6. Alternatively, he could delay the implementation of any changes for a year, say until April 6, 2021, to give everyone time to adjust.

"Every budget [season] people get cold feet and they think that Entrepreneurs' Relief may be restricted or withdrawn," Gannon told VIN News. "But there have been warnings from the government this time round that it is an area they're looking at."

The Financial Times newspaper, citing a senior government minister, reported last week that Javid is planning to "scale back" the tax break in the March budget because it is overly generous to the wealthy.

Still, Gannon said, the government might come under pressure from some inside its own party to leave the benefit intact to promote investment in local business, especially in light of Britain's departure from the European Union. "It's politically very hot," she said. "I think the conclusion is: Whether this happens, if it happens and in what shape or form, is far from certain."

Update: On March 11, Britain's new chancellor of the exchequer, Rishi Sunak, announced changes to Entrepreneur's Relief, effective immediately. Capital gains tax on sold businesses remains at 10% but only on gains up to £1million, down from the previous limit of £10 million.

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