SWEEPING aside the Chancellor’s big challenges of income tax rates, self-employed vs employed workers and the headache of the gig economy, an area of tax with direct relevance to technology and biotechnology companies that I believe is ripe for change in the 2017 budget is venture capital schemes – EIS, SEIS and VCT relief.
These schemes provide tax breaks for investors in the form of income tax relief and capital gains tax exemption. When the conditions are met, the system is generous for individuals, so an investment and advisory industry for high net worth individuals has grown up. Over time the UK tax avoidance rules have become more complex and the impact of EU state aid requirements have added further burden to those rules.
There is, however, one fundamental aspect of venture capital schemes that hasn’t changed – the activities of the company being invested in. Provided the company is not engaged in perceived low risk “excluded activities”, such as banking or property development, its investors may qualify for EIS, SEIS or VCT. As a result, the tax breaks can be the same for those who invest in a conventional retailer or in a groundbreaking research-based company – neither is doing “excluded activities” so both are included.
What would be great to see is a change in the tax system to match Government rhetoric on “investing in the knowledge economy” and “the companies of the future” and so on. Surely investors who take risk by putting their cash into what is now defined in these tax rules as a “knowledge-intensive company” should get more relief than those who invest in more conventional businesses.
Best of all, this change would direct private cash to where it is needed most, so it would be a fiscal solution, not a fiscal challenge, for the Chancellor.
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