Our Tax Expert Group, in conjunction with our Share Schemes Expert Group, has prepared and submitted our annual proposals for taxation reform to the Chancellor of the Exchequer ahead of the Autumn Statement and 2017 Budget.
Our proposals are designed to help inspire private sector growth and employment and focus on three key areas:
- Creating a simple and reliable tax system – We suggest creating a small-cap threshold that exempts small and mid-size quoted companies from tax legislation that imposes a disproportionate compliance burden. We also propose introducing a binding, paid-for clearance/ruling process, a withholding tax relief regime applicable to interest payments and other provisions that further simplify our tax system with regards to transfer pricing, size tests, the tax treatment of employment income clawback and the process of electronically registering employee share plans.
- Encouraging long-term investment and funding for growth – We encourage the removal of the arbitrary 5% threshold for capital gains tax Entrepreneurs’ Relief in respect of shares held by employees/officers. We propose alternative measures to mitigate the negative effect of the 5% test on small and mid-size quoted companies such as aligning the treatment of Enterprise Management Incentives (EMI), Save As You Earn (SAYE) and Company Share Option Plan (CSOP) share option schemes and extending Entrepreneurs’ Relief to earn outs. We also propose the extension of the EMI size qualification criteria, amending the 5% test so that it is more consistent with the substantial shareholdings exemption, relaxing some of the requirements of the CSOP to encourage further employee share ownership and enhancing the rules for using the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT).
Creating a level playing field for equity and debt – We suggest making the costs of raising equity tax deductible in order to encourage more companies to raise equity finance. Alternatively, or as a potential transitional measure, we propose that the cost of raising equity could be deductible by being included within the £2 million de minimis threshold.
To read our Budget Representations, please click here.