At last, some good news for entrepreneurs in the Budget

Last month I said that I wouldn't be holding my breath waiting for the Chancellor to adopt any of our'‹ '‹suggested tax changes in the Budget.

Tim Ward, chief executive of the QCA

Well on the day, inevitably as I am an optimist, I held my'‹ '‹breath and listened intently to his speech. Nothing.And still holding my breath I read the detailed Budget document that accompanies the Chancellor’s'‹ '‹speech. It has all the little things that make so much difference to the taxpayers’ wallet, good and'‹ '‹bad. Still nothing.But wait, I said to myself. What’s this? On page 49, in a section on Access to Finance, there was'‹ '‹mention of a change to Entrepreneurs’ Relief and I was referred to another document called'‹ "Financing growth in innovative firms: consultation response'‹".I was beginning to go blue in the face until I exhaled on page 13 when I read that: “The '‹G'‹overnment'‹ '‹is concerned that the qualifying rules of Entrepreneurs’ Relief should encourage long-term business'‹ '‹growth. The rules will therefore be changed to ensure that entrepreneurs are not discouraged from'‹ '‹seeking external investment through the dilution of their shareholding. This will take the form of'‹ '‹allowing individuals to elect to be treated as disposing of and reacquiring their shares at the then'‹ '‹market-value. The '‹G'‹overnment will consult on the technical detail.”The document explains that Entrepreneurs’ Relief, introduced in 2008, provides a 10'‹ per cent'‹ rate of Capital'‹ '‹Gains Tax for qualifying disposals of business assets. The purpose of the tax relief is to act as an'‹ '‹incentive for entrepreneurs to start and grow their business by allowing them to keep more of the'‹ '‹rewards when their investment is successful.We have been campaigning for such a change for several years, patiently and persistently. We have'‹ '‹explained our thinking to HM Treasury ministers and officials and now they have acted.Currently, anyone in a company holding more than 5'‹ per cent'‹ of the shares qualifies to have any capital'‹ '‹gain taxed at 10'‹ per cent'‹ rather than the usual 18'‹ per cent'‹. This means that such shareholders are loath to reduce'‹ '‹their shareholding below that limit as they don’t want to nearly double the tax that they will have to'‹ '‹pay.The relief is designed to encourage entrepreneurs rather than hold them back. Of course, it is'‹ '‹obvious that if you have 20 shareholders holding 5 '‹per cent'‹ each then any move to raise more capital to'‹ '‹grow will cause someone to lose their relief. The '‹G'‹overnment has now recognised this and is putting'‹ '‹the means in place to mitigate this and unlock this impediment to growth. This is very good news for'‹ '‹all entrepreneurs across the country whether they run quoted or private companies. And it also'‹ '‹allows me to get more oxygen into my lungs!And as well as the change to Entrepreneurs’ Relief, the government announced several other'‹ '‹changes which will help companies improve their access to capital. These include an action plan to'‹ '‹unlock over £20'‹bn of patient capital investment to finance growth in innovative firms over 10'‹ '‹years.As part of this they announced that the annual allowance for people investing in knowledge-intensive companies through the Enterprise Investment Scheme (EIS) will be doubled and as will the'‹ '‹annual investment those companies can receive through EIS and the Venture Capital Trust scheme.The '‹G'‹overnment will also be introducing a new test to reduce the scope for and redirect low-risk'‹ '‹investment, together unlocking over £7'‹bn of growth investment.This is very good news for growth companies as tax incentives will be better directed at companies'‹ '‹that take risks rather than those designed to protect investors’ capital.However, there are other fiscal matters that affect the small cap equity markets that still need'‹ '‹addressing: the fact that the costs of raising equity are taxed while it is not for debt finance is just'‹ '‹one of these. This was not recognised in the Budget (again).So next year I will be holding my breath as usual.'‹'‹

Sign up to our Business newsletter

Sign up to our Business newsletter