Are governments really listening to innovation investors?
The iij compares innovation-friendly policy ideas offered prior to the UK budget with the measures actually announced by the chancellor
We asked employee share scheme specialists Elman Wall to compare Julie’s pre-budget suggestions with the Chancellor’s announcement
“Whilst Julie requested some specific amendments to the Enterprise Investment Scheme which have not happened, there are nonetheless to be some significant changes from 6 April 2011″
Russell goes into more detail on the comparison here
- EIS (Enterprise Investment Scheme) tax compliance scheme is a good one and is vital in encouraging more Angel investing since it is an immediate incentive and possible future capital gains advantage. Some suggestions to improve this already good thing :
Extend the scheme to private debt financing
Remove restrictions around connected party and being a director. This is counter-productive as start-ups need expertise and cash and investors need to retain some control.
- EMI Options (Enterprise Management incentive Options) – restrictions need to be lifted for Angel Directors who at present are not getting them i.e. for working 25hours per week in a company. I believe they should be tax free (up to say £500kpp) so that they are a real incentive for senior people and help start-ups to recruit talent.
- Overall tax framework and corporation tax – There are several issues here. If a company issues shares in return for his/her time than the investor/advisor has an immediate income tax charge (because the investment to date will fix a valuation for the company and its shares. So even though the shares he/she would receive could not be sold and could end up being worth nothing if the company fails, they are immediately taxed. Ways round this could include:
Only pay the tax when the shares are actually tradable and actually have some value (and then no tax will be paid if the shares end up being worthless
Create a simpler model. This is far too complex
Reduce tax on foreign-controlled corporations if they channel funds held in the UK into SMEs and funds backing SMEs.
- Capital Gains and Taper Relief – Taper Relief should be reintroduced as currently an investor pays the same amount of CGT on a long term investment as on short term speculation. In fact, at present, he/she is worse off investing for the long term as he no longer benefits from indexation allowances when calculating CGT. There should be a reduction for longer term investing. We should also dramatically reduce – or even better remove- the limit on Entrepreneur’s relief.
- National Insurance and PAYE – Eliminate National Insurance not just for companies in their first two years and under 10 employees but until they have substantial profits.”
Here’s an interview with Julie, where she sets out some of her ideas about innovation investment: