By Munya Hoto, VP of Demand Generation at idio
For a long time now Silicon Valley has been seen as the oasis for entrepreneurs in search of success and fortune. The reasons for the migration of the best talent in business to the west coast of the United States of America (USA) only need to be stated to be obvious, from culture to excess capital.
The culture in the valley is one of enterprise and it is supported by a very active venture capital market that means the appetite for risk is high and insatiable. The extent of the availability of capital was made clear by Vassil Mladjov who is Research Director for Startups, Incubators and Venture Capital at Gartner Research who stated in a recent report that in excess $47 billion of investments were made in over 4000 business in the USA in the last 4 quarters. Most of the technological success stories of the last decade have come out of the valley and include names like Evernote, Uber and Airbnb.
That being said, competing governments have realised that in order to attract innovators and entrepreneurs, the conditions have to be more than welcoming. The United Kingdom (UK) is leading the charge in this regard by providing incentives for investors and business owners alike to plant their businesses in the fertile soils of what has come to be known as Silicon Roundabout, the UK’s own technology oasis.
Having identified a gap in the market to use content to better understand customers, our story at idio is that we were able to start a company and with the support of the UK government grow into an international brand that serves customers across sectors such as Financial Services and B2B Technology. Other UK founded companies that have benefitted from the favourable business conditions include WorldRemit, Brightpearl and NewVoiceMedia. Here are 5 reasons why the UK is one of, if not the best place to invest in a small business at the moment;
The Enterprise Investment Scheme:
Since the economic meltdown of 2007, small business have been finding it difficult to raise capital but the the UK government, through the Enterprise Investment Scheme has offered investors up to 30% (depending on the size) of their investment back as a reduction in tax paid elsewhere. This has facilitated for the inflow of large amounts of capital into Silicon Roundabout in the last few years.
Profits are tax free and investors are protected against losses:
In order to encourage the inflow of capital into the UK, the government has removed any capital gains tax if the shares are held for at least 3 years. Not only do investors get exemptions on capital gains but in the event that the company makes a loss, investors also get tax relief on the loss made.
Patents are protected:
If you invest in a patent, future profits from the ring-fenced patents are taxed at a reduced rate. This means that entrepreneurs are hugely incentivised to originate new products and innovate. The protection of patents from high rates of tax is also supported by the fact that HM Revenue and Customs (HMRC) allows companies to more than double-up costs spent on research and development. In addition to that, the company is loss-making, HMRC will even give funds back in the current year, rather than making the company wait to offset the losses against future years.
Flat rate of value-added tax (VAT):
Small businesses are often ill equipped to deal effectively with issues such as accounting and tax while also developing their products. To mitigate that threat, the administrative burden of VAT accounting is ameliorated by a flat rate of VAT. Companies in the UK pay VAT on a flat rate of their gross of VAT sales. This is very easy to calculate and most companies even save some money.
The exit is also tax efficient:
In the event that entrepreneurs and investors choose to sell their companies, the tax rate on the gains from selling the companies is a mere 10%.
If you are considering investing in or starting a business, the UK stands out as a great location to unlock value and generate great returns.
What do you think?