Something Ventured, Something Gained? EIS, Tax Reliefs & The UK Tax System
Much is (rightly) made of the complexities of the UK tax system. However, an equal problem can be the amount of change in the system.
This not only presents business owners with frustrations in the real world… but also causes problems for humble accountants and tax advisers who need to keep on top of these changes.
It can also lead to the brain cells of this latter category of adviser suffering the odd mental blowout – whether its an inability to recall anything other than the old sections of ICTA 1988 or recalling old and strange reliefs that are long gone.
The latter happened to me today.
Does anyone else remember the Corporate Venturing Scheme (“CVS”)?
It was a relief that operated between 2000-2010 and afforded companies a 20% tax break on minority investments in smaller companies.
It could be thought of as the corporate version of the Enterprise Investment Scheme (“EIS”), which offers tax relief for individuals making similar investments in growth companies.
EIS and its younger sibling Seed EIS continue to thrive as a way of raising funds for smaller companies. Since 1993/94, around 30,000 companies have raised investment over £20bn through EIS.
Here perhaps lies the answer as to why CVS was scrapped. In its 10-year life, it raised just £28m across 600 smaller companies.
Not much to write home about.
The UK Tax System
We have seen in the press, that the Government potentially sees UK tech companies as the white algorithm that will ride to our rescue. Could the Government look to something like a re-booted CVS to help boost the economy?
Indeed, providing a tax reducer of, say, 30% of an investment (capped) would seem to provide a real incentive for companies to invest in new ventures. However, one only needs to look to its dismal uptake between 2000-2010 to see it’s not that simple. You can build it, but people may still not come.
There needs to be better attempts by the Government to understand the barriers that exist for small companies to access corporate venture cash.
Of course, we do see reliefs brought back from the dead in a modified form from time to time. We saw retirement relief replaced by taper relief which was replaced by Entepreneurs’ Relief – which bears a good resemblance to the retirement relief rules.
Now, all I need to do is remember whether its the Corporation Tax Act 2009 or Corporation Tax Act 2010 that I need?
If you have any queries about this article, or tax matters in general, then please get in touch.