Finance Bill – Stalemate on options.

Finance Bill - Stalemate on options.

The government has signalled its sympathy over strict limits applying to the new Enterprise Management Incentives for companies dependent on individual venture capitalists.

But economic secretary Melanie Johnson said no practical solution has been found to prevent tax avoidance where a single investor or investment company owned more than half of the business.

She said the rules for EMI – allowing up to 15 key executives to be given options to purchase up to #100,000 in shares tax-free – are designed ‘to provide tax-advantaged share incentives to help small, independent, higher risk trading companies attract and retain key personnel’.

Johnson said she understood the anxiety that companies controlled by venture capitalists will not qualify for EMI. She said they had been considered during consultations – but ‘it would be difficult to provide a test that identified venture capital backing as opposed to any other kind of financial backing.

‘It would also be difficult to distinguish which venture capitalists should be allowed to control companies able to offer EMI without introducing complexity and possible avoidance opportunities.’ She added there would be no problem where several different venture capital funds owned in aggregate more than 50% provided no one fund was in that position.

The hint was the only sign of possible government movement during Finance Bill committee debates in the face of a series of Tory attempts to widen the scope of EMI – and allied Enterprise Incentive Schemes, Venture Capital Trusts and Corporate Venturing Scheme rules.

On EMI, the opposition tried to qualify certain ‘independent’ subsidiaries, increase the limit on options from #100,000 to #250,000, remove ‘recruit and retain’ criteria and increase the number of key personnel able to benefit.

It also tried to change the means of calculating the size of qualifying companies, enable subsidiaries to qualify, reduce the ‘trading’ criteria and challenge the ban on nursing home, farm and other property-based businesses.

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