Business Profile
Effective tax planning is all about making sure individuals and businesses take full advantage of the reliefs available to them. Jaki Mitchell, a partner at Crowe Clark Whitehill, the national audit, tax and advisory firm, guides you through some of the new reliefs aimed at entrepreneurs and entrepreneurial businesses.
The Enterprise Investment Scheme (EIS) was set up by the Government to encourage investment in small unquoted companies by offering a series of tax reliefs to investors.
The eligibility criteria of EIS were recently widened to boost investment and this has resulted in a higher number of qualifying companies and an increase in the amount that can be invested – although the changes noted below are all conditional on EC State Aid approval.
EIS provides a tax-efficient way for qualifying companies to raise up to £2m every 12 months by pooling money from investors to buy shares. This amount is set to rise five-fold, from £2m to £10m next year.
EIS investments are extremely tax efficient, offering both income and capital gains tax relief. For instance, there is now 30 per cent income tax relief for up to £500,000 invested per person per year, up from 20 per cent prior to April. Added to this, any growth in the value of your EIS investment can be realised capital gains tax-free, provided the shares are held for a minimum of three years.
Also, a capital gains tax deferral relief enables gains arising from any source to be deferred by using the proceeds to buy qualifying shares.
The annual amount that an individual is able to invest is currently £500,000. However, as of April 2012, this will double to £1m. At the same time, the definition of ‘qualifying’ companies will become broader to allow larger companies with fewer than 250 employees and gross assets of no more than £15m before investment, to qualify.
The combination of these changes will result in more businesses falling within the range of entrepreneurs with funds to invest, although there still remains a lengthy list of excluded activities.
Aside from EIS, other tax breaks such as the five-year business rate holidays in the new Enterprise Zones, enhanced R&D for smaller companies, the continued consideration of a patent box regime, allowing profits generated from UK patents to be taxed at only 10 per cent, as well as reduced red tape for life sciences and digital media businesses, can prove extremely useful.
There is also some speculation surrounding enhanced allowances for manufacturing businesses in the new Enterprise Zones, which will further manufacturing businesses.
Beyond the Budget headlines of lower corporate tax and the extension of Entrepreneurs Relief to £10m, the new tax reliefs have entrepreneurs in their sights, encouraging both companies and individuals to plan their tax affairs to ensure they are able to take full advantage of these reliefs.
To discuss how Crowe Clark Whitehill can help you make the most of the Enterprise Investment Scheme tax reliefs, please telephone Jaki Mitchell, partner at Crowe Clark Whitehill in the Thames Valley, on (0118) 959 7222 or for further information, visit the website: www.croweclarkwhitehill.co.uk
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