Seed investment set for new tax regime

TAX INCENTIVES to boost small business investment have been outlined by the government.

The coalition intends to simplify and streamline the Enterprise Investment Scheme (EIS) and venture capital trusts (VCTs). A standalone scheme for targeting early-stage investment will also be introduced, known as the Business Angel Seed Investment Scheme (Basis).

Simplifications proposed to the two offerings include aligning the EIS and VCT investment processes, so those investing through preference shares will qualify under both schemes.

Certain ‘connected’ people to a business will be allowed to invest and could qualify for income tax relief.

The proposals for Basis include providing a more narrow focus for incentives at the lowest end of the investment chain, though the Treasury admits that a new scheme could add complexity to the tax system.

The Treasury’s consultation document stated: “The Basis scheme would be based on the current EIS but targeted more directly at Business Angels to incentivise their investing at the seed-stage of a company’s development.

“Though a new scheme could bring additional complexity to the tax system, by making it more narrowly focused than the existing reliefs, the proposal set out here aims to address more accurately the problems faced by start-ups that need seed investment, and to encourage Business Angels to invest in these enterprises.”

David Gauke, exchequer secretary to the Treasury, said the new plans, which also include a raft of changes flagged up in the Budget, would make the UK tax system more competitive.

“The government wants to make the UK the best place in Europe to start, finance and grow a business and we know that a vital part of this is ensuring access to a wide range of sources of finance,” said Gauke.

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