New tax reliefs to give Britain’s small companies access to the finance and support they need to grow and succeed were announced today.

The proposals will help boost the enterprise culture through the promotion of corporate venturing and will allow companies to:
obtain corporation tax relief at 20 per cent on corporate venturing investments.

Following consultation the incentive has been enhanced and will allow companies to:
qualify for relief if they retain shares for 3 years, rather than 5 years; defer tax on any gain made on corporate venturing investments where that gain is invested in another shareholding under the scheme;
claim relief against income for capital losses net of corporation tax relief on disposals of shares.

Trade and Industry Secretary Stephen Byers said:
“Corporate venturing will help business to develop and grow. The new tax incentive gives companies the opportunity to work together and share knowledge and skills for mutual benefit and growth.”

Financial Secretary Stephen Timms said:
“Britain’s small businesses are vital to our future success in the knowledge-driven economy. Corporate venturing has played a vital role in the development of small high-tech businesses in the United States. I believe corporate venturing can do the same here.
“The package announced today is an important boost for corporate venturing in the UK. It will give more companies better incentives to widen their activities and enter into corporate venturing relationships, providing the tools for them to grow and succeed.”
1. An Inland Revenue Technical Note issued on 10 March set out a proposal for corporation tax relief at 20 per cent for minority shareholdings in small higher risk trading companies. This relief is intended to encourage the establishment of corporate venturing relationships and to increase the supply of venture capital to small companies. The Government has decided to simplify some of the conditions for the relief set out in the proposal in response to points made in consultation.

2. The changes are:
a reduction (from 5 years to 3 years) in the period for which investors must retain shares if they are qualify for relief on them;
an increase in the maximum investment by a company which qualifies for relief from 20 per cent to 30 per cent of the ordinary share capital of the small company in which it invests;
removing the requirement for a minimum investment (of 5 per cent of ordinary share capital); and
removing the limit on total corporate investment (of 40 per cent of ordinary share capital). Instead there will be a rule that 30 per cent of ordinary share capital must be held by individuals.

3. Those responding to the Technical Note generally welcomed the proposal for a corporate venturing relief but some considered that the conditions for relief, as originally proposed, were too restrictive and likely to inhibit investment. In particular the main points made were that:
the retention period of 5 years was too long for business activities where the technology developed rapidly and products had a short life;
while it was accepted that the corporate investors should not get relief if they controlled the small company, the limits on corporate investment were too low; and
the minimum investment requirement was unnecessary as small investments would not be economic.

The changes the Government has made address these points.

4. The Technical Note floated the possibility that, when investors disposed of shares, tax on any capital gain arising might be deferred if the gain was reinvested in shares which qualified for corporate venturing relief. This would encourage serial investment. The Government has now decided to make such relief part of their proposal.

5. In addition, where the disposal of shares gives rise to an allowable loss for tax purposes, the company will be able to claim relief for it against income of the accounting period in which the loss arises or accounting periods ending in the previous 12 months. This will be of benefit where the loss cannot be relieved in the normal way against chargeable gains and also where the company has carried forward unused losses from earlier accounting periods.

6. The Government are grateful to everyone who responded to the Technical Note and consider that consultation has made a significant contribution to the development of proposals for a corporate venturing relief. Draft clauses containing the legislation necessary to introduce the relief are to be issued by the end of the year and there will be consultation on the regulatory impact of the proposals.


Corporate venturing is an umbrella term for a range of mutually beneficial relationships which may be established between companies. Such relationships are commonly between a larger company and a smaller one, often in the same line of business. The larger company may bring to the relationship particular skills, knowledge or facilities, for example in management or marketing, to which the smaller company would not otherwise have access. And it may offer financial assistance. The smaller company may be carrying out research and development or other work in an area in which the larger company is interested.

The Inland Revenue issued a Technical Note on 10 March 1999 outlining a proposal for a tax incentive for corporate investment in smaller higher risk trading companies. The purpose was:
to increase the supply of venture capital to such companies; and
to encourage the establishment of wider corporate venturing relationships between the parties.

The Technical Note is available on the Inland Revenue web site (

The proposal was for a corporation tax relief at 20 per cent on the amount invested in the ordinary share capital of small higher risk trading companies. The Technical Note proposes that small companies would be those with gross assets of not more than #15 million immediately before the investment, and not more than #16 million immediately afterwards. Investment in companies existing for the purpose of carrying on most trading activities would qualify, but not investment in companies carrying on the lower risk trading activities that are excluded from the

Enterprise Investment Scheme and Venture Capital Trusts. These excluded activities include financial activities such as banking and insurance, dealing in land or securities, and the leasing or hiring of most types of asset.

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