More details have emerged of a new tax incentive designed to encourage larger companies to invest in small high-risk ventures, first announced by Gordon Brown in last November's Green Budget.
The Inland Revenue has published draft legislation of the new corporate venturing scheme allowing companies which invest in new ordinary shares of small higher risk trading companies to obtain up front corporation tax relief at 20 per cent on corporate venturing investments held for at least 3 years.
Investing companies will also be able to defer tax on any gain made on a corporate venturing investment which is reinvested in another qualifying company under the scheme.
They will also be able to obtain relief against income for capital losses on disposals of corporate venturing investments.
Chancellor Gordon Brown said: ‘In competitor countries, growing companies do well because large companies invest in them.’
Under the new scheme the companies issuing the qualifying shares must be unquoted and have gross assets of not more than £15 million immediately before the investment and £16 million after it. To qualify the company which issues the shares, or a subsidiary, must carry on a qualifying trade.
Most trades will qualify other than some lower risk activities and trades backed by property which are excluded from the existing venture capital schemes, the Enterprise Investment Scheme and Venture Capital Trusts.
The scheme is intended to encourage corporate venturers to take minority holdings in independent companies. So investors must not control the companies they invest in, nor hold more than 30 per cent of their ordinary share capital (including any shares not attracting relief). At least 30 per cent of the ordinary shares of the issuing company must be held by individuals who are not directors or employees of the investing company.
The scheme will be introduced in next year’s Finance Bill and will apply to shares issued on or after April 1, 2000 where the conditions of the scheme are met.
The draft legislation is at www.inlandrevenue.gov.uk/drafts
The Revenue is seeking comments by February, 4.