Photograph: HM Treasury
We have submitted our proposals for tax reform ahead of the Autumn Statement on 5 December, which focus on ensuring that small and mid-size quoted companies can obtain and maintain funding for economic growth. The proposals focus on three areas:
- Encouraging long-term investment and funding for growth
We suggest the removal of the arbitrary 5% threshold for Capital Gaints Tax (CGT) Entrepreneurs’ Relief for employees/officers, funded by extending the minimum holding period for the relief. This will encourage the alignment of employee and management goals in driving growth. We also suggest expanding this relief to long-term investors in SMEs to recognise all stakeholders who make a meaningful and important contribution to growing businesses.
We believe that long-term investment could be further encouraged through reinstating the dividend tax credit for pension funds and changes to the types of shares allowed to be included in ISAs.
- Creating a level playing field for equity and debt
The tax treatment of raising equity versus debt financing has been a key feature of debates on the causes and consequences of the 2008 financial crisis. We suggest that the costs of raising equity should be tax deductible in order to create a more level playing field and encourage more companies to raise equity. Case law in the VAT area already supports this principle, and aligning the direct and indirect tax treatment would achieve greater consistency in the tax system.
- Creating a simple and reliable tax system
We have become increasingly concerned that some areas of tax legislation impose a disproportionate compliance burden on small and mid-size quoted companies, including the worldwide debt cap rules, transfer pricing, senior accounting officer requirements and size tests in tax legislation. We have included suggestions for how these areas could be simplified.
- Increasing investment and liquidity
We argue for the abolition of stamp duty in order to stimulate activity in the shares of small and mid-size quoted companies, which will help drive investment in the sector.
You can read all the detail of our proposals (including ideas on how to fund them) by clicking here. As ever, if you have any comments or feedback on our proposals, let us know by emailing Maria Gomes, our Head of Policy.