Enterprise Investment Scheme: Is The Government Making Tax Better For Entrepreneurs?

07/04/2011

By Richard Mannion, National Tax Director at Smith & Williamson

The increase in EIS (Enterprise Investment Scheme) income tax relief to 30% was one of the positive developments for entrepreneurs coming out of the Budget. Together with the proposed increase in the annual amount qualifying for EIS relief for individuals to £1 million, this was a helpful change for UK enterprise. In short, it should mean more investment in smaller companies.

Changes to the employee limit and gross assets limit should substantially increase the number of companies which can qualify for investment under the EIS and VCT (Venture Capital Trusts) rules. The measures...

...should increase the popularity of the schemes in the coming years and go some way towards plugging the so called ‘equity gap’.

Meanwhile, the Budget also revealed the Government’s latest attempts to simplify taxation. It had already set up the Office of Tax Simplification (OTS) and asked it to review all the tax reliefs in the tax code and to recommend improvements for taxing small businesses.

Progress on reliefs

The OTS identified 1,042 reliefs and set out to review 149 in detail to see if they were still required and, if so, whether they needed updating. The list included capital gains tax entrepreneurs’ relief (ER). This was very much an after-thought when CGT (Capital Gains Tax) was simplified in 2008 and the rules reflect the fact that they were rushed in.

The OTS concluded that ER was performing an important role, but questioned why it was limited to £5m if its purpose was to encourage serial entrepreneurs. The Chancellor responded by raising the lifetime allowance to £10m in the Budget, potentially giving a total tax saving of up to £1.8m to an individual, so this was another positive development for entrepreneurs.

The OTS also pointed out that the relief is over-complex and... continued on page two >

 

 

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