Is Budget vehicle or blockade for innovation?

Is Budget vehicle or blockade for innovation?

Menzies LLP provide the latest opinions on the Budget, as their senior tax technical manager, Will Sweeney, focuses on the EIS fund

The next few years will be of paramount importance for UK businesses, as they look to stabilise as much as possible in uncertain times. As such, according to Menzies LLP, all entrepreneurial businesses will be hoping that the chancellor’s decisions in the Budget will provide support and not further restrictions.

There is a growing necessity for extending incentives for investment into SMEs as a form of support following on from Brexit. This could effectively begin to counteract previous restrictions that have been affecting tax reliefs. One example of how this could be done in the Autumn Budget is to simplify the rules affecting the use of the Enterprise Investment Scheme (EIS).

Will Sweeney, senior tax technical manager at Menzies LLP, said: “Since its introduction in 1994, EIS has gradually grown in popularity. However, a complex set of conditions apply which have made the scheme difficult – and slow – to access. Simplifying the scheme could encourage investment at a critical time for early-stage or growing businesses.”

It is perhaps not so surprising that investors are choosing to invest in the safer, capital-rich businesses and ventures, because of the unstable climate. Due to this, innovative technology start-ups are struggling even more to secure investment and sustain their growth.

“The government is keen to find a way to channel funds into innovation-led businesses, despite their slightly riskier profile,” Sweeney said. “A new EIS fund could facilitate this, whilst rewarding those investors who choose to participate.”

Earlier this year, the government consulted on plans to create a new fund structure within EIS, an idea that has gathered credence, particularly when following on from the R&D success story. The EIS consultation involved the idea of encouraging more investors in the R&D sector to invest in knowledge-intensive companies.

Sweeney continued: “The government is keen to find a way to channel funds into innovation-led businesses, despite their slightly riskier profile. A new EIS fund could facilitate this, whilst rewarding those investors who choose to participate.

“As well as offering the standard EIS tax savings upfront, the fund proposed by the government would offer additional tax relief to investors who are willing to provide funds over a longer holding period.”

The firm’s focused plea for the Budget is that the chancellor removes some of the restrictions that are currently in place over investments made in UK businesses by non-domiciles via the Business Investment Relief (BIR). These restrictions include the exclusion of business structures specifically implemented by smaller businesses, such as partnerships or sole traders.

Sweeney concluded: “Further measures, including the reform of company tax relief for intangible assets such as IP rights, and the extension of Entrepreneur’s Relief for business owners aiming to sell up, would also serve to demonstrate that the UK is open for business.”

Whether or not businesses will be at the forefront of the chancellor’s Budget agenda remains to be seen, but there is no doubting the fact that innovation continues to be vital in an ever-changing economical and political landscape.

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