Experts cast doubt on small firms’ scheme

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A YORKSHIRE-based tax expert has questioned whether measures outlined in the Autumn statement to boost investment in small firms will amount to anything more than “a token gesture” from the Treasury.

Analysts from BDO and Saffery Champness have raised doubts about whether the Government’s Seed Enterprise Investment Scheme (SEIS) will prove valuable for investors.

The SEIS was one of a number of measures announced by Chancellor George Osborne on Tuesday. The measures aim to boost the economy by encouraging investment in fast-growing small businesses.

The SEIS offers 50 per cent income tax relief and a Capital Gains Tax (CGT) holiday in the first year. As a result, the Government hopes there will be a larger pool of equity available for investment in start-up enterprises.

However, Harrogate-based tax expert Tom Roseff, of Saffery Champness, said the wording of the Chancellor’s latest tax relief incentive to encourage investment in start-up companies needed clarification before business angels and other prospective investors could assess its true value.

“On paper both the income tax and CGT reliefs seem extremely generous and it is not difficult to construct a scenario where an investment of say, £100, would generate immediate tax savings or repayments of £78,” said Mr Roseff.

But he warned that it was unlikely the rules would allow investment in a connected company, which means investors will not be able to put money into a business they control.

A senior figure at accountants and business advisers BDO was also sceptical about the impact of the proposed SEIS. Terry Jones, the tax partner at BDO in Leeds, said the scheme was little more than a “token gesture” from the Treasury. He said: “The cost to introduce it will be £50m in 2013/14 falling to just £25m in later years – a tiny sum in comparison to a tax take from corporation tax of approximately £50bn per annum.

“Having said that, innovative and fast-growing start-ups will help generate the new jobs and economic growth that is needed. Early stage investment can be risky and this new incentive should encourage investment into new companies.”

Neil Holyoake, tax partner at Ernst & Young in Leeds, said: “This is encouraging but the devil’s in the detail. These incentives are forward thinking but the challenge will be in putting these into practice while keeping red tape to a minimum.”

A Treasury spokesman said: “On Tuesday, the Chancellor announced a package of enterprise-boosting measures that, alongside a £20bn credit easing to lower the cost of loans for smaller businesses, will support SMEs and help them grow. Further detail on the SEIS scheme will be published at the beginning of next week in the draft Finance Bill legislation.”