Ahead of the Spring Budget, we organised a breakfast session with Jane Ellison, Financial Secretary to the Treasury on 2 February, which was kindly hosted by RSM. The breakfast was attended by company directors and members of our Tax and Share Schemes Expert Groups.
The meeting offered our members the opportunity to voice their concerns over taxation issues and to learn more about the Government’s direction of travel on tax reform. It was the seventh time a similar event has been organised.
The discussion started with a general overview of the economic climate. The UK economy has proved more resilient than expected following the referendum in June 2016. Nevertheless, there are indications of inflation being on the rise and the Chancellor has spoken gravely about the UK’s productivity challenge. Additionally, the new US President and Brexit mean that there are many unknown factors that may have unanticipated implications on the economy.
The Treasury is currently in the process of finalising the details of the Spring Budget which is to be announced on the 8th March. The proposals that the QCA has put forward in its Budget Representations 2017 have been taken into careful consideration by the Treasury.
The attendees used the opportunity to highlight the fact that the 5% shareholding requirement on capital gains tax for Entrepreneurs’ Relief does not recognise the continuing need of small public companies to incentivise all employees who make a valuable contribution to the growth of a business. It was said that the 5% shareholding requirement influences commercial decisions by effectively encouraging those who benefit from it to ensure that any new fundraising or restructuring does not dilute their shareholdings below the 5% limit.
The new Apprenticeship Levy was discussed at length. Some considered it to be an additional tax on businesses others saw that it might make companies reflect more on their hiring processes which might have a positive effect on their business. It was agreed that there should be longer adjustment periods for companies to implement the new levy requirements.
Our members also expressed concern over the imbalance of the tax treatment of raising equity versus raising debt finance and drew attention to the fact that the complexity and uncertainty of the tax system was a challenge for smaller companies. Members noted that smaller companies would benefit from simplification and less frequent changes to the UK tax regime.
The topic of growth companies sparked much discussion around the room. Participants recognised that the lack of support and funding for growth companies that are looking to scale up is a major challenge. The group agreed that there are effective measures in place for very young companies to help them get started but that once companies looked to scale up they struggled to find the funding needed to take their business to the next level. This detrimental “cliff-edge” effect which inhibits companies from growing should be urgently addressed by the Government.
To address the challenges faced by smaller companies the Government has initiated two new proposals such as the Patient Capital Review and the Industrial Strategy which aim to facilitate access to finance for small and mid-size quoted companies. The Patient Capital Review, announced in November 2016, will identify barriers to access to long-term finance for growing firms whereas the Industrial Strategy aims to improve economic growth by increasing productivity and driving growth across the whole country. We are engaging with the Government on these initiatives to represent the interests of quoted companies across the UK.
The Financial Secretary to the Treasury has accepted our invitation for a follow-up a discussion in early autumn 2017 ahead of the Autumn Budget. Members will receive further details in due course.