Budget 2018: QCA analysis for small & mid-size quoted companies

30th October 2018

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Yesterday, the Chancellor of the Exchequer delivered his Budget to Parliament.

Among his most noteworthy announcements concerning small and mid-size quoted companies were:

  • Retaining entrepreneurs’ relief but extending the minimum qualifying period for claimants: Entrepreneurs’ relief was retained, however, to support longer-term business investments, for disposals from 6 April 2019 (except where a business ceased before 29 October 2018), the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months.

    We welcome the Chancellor’s commitment to entrepreneurs’ relief. As we explained in our proposals for taxation reform, which we submitted in September 2018, it plays an important role in small and mid-size quoted companies being able to attract the necessary talent and investment to grow and create more employment, which is essential to the UK’s economic growth.

    The increase in the minimum qualifying period supports our belief that a longer-term holding is more characteristic of genuine entrepreneurial activity, which promotes sustainable business and macroeconomic growth.

    You can read the policy paper in full here.
  • Adding two new tests added to the definition of a 'personal company' for entrepreneurs’ relief eligibility: Claimants must have at least a 5% interest in both the distributable profits and the net assets of the company, in order to claim the relief. These tests are effective immediately (29 October 2018 onwards).

    You can read the policy paper here.
  • Reforming the degrouping charge rules: These rules will apply – with effect from 7 November 2018 – when a group sells a company that owns intangible fixed assets, so that they more closely align with the equivalent rules elsewhere in the tax code.

    We welcome this change. As we explained in our proposals for taxation reform, the previous inconsistency undermined the benefits that the government sought to achieve with its 2011 changes, which allowed any ‘degrouping charge’ to be added to the consideration for the disposal, so that the charge is levied on the seller company rather than the target company.

In addition, there were rumours in advance of the Budget that the Chancellor may remove incentives to invest in UK growth companies via business property relief to reduce inheritance tax. This did not arise in the end and the QCA believes that removing this tax incentive would negatively impact the small and mid-size company sector in the UK by adding a disincentive for equity finance.

Other measures that were announced at the Budget were:

  • A temporary rise in the annual investment allowance: This will be increased from the current £200,000 to £1 million for all qualifying investment in plant and machinery made between 1 January 2019 and 31 December 2020.
  • Reduction in the capital allowances special rate: From April 2019, the capital allowances special rate for qualifying plant and machinery assets will be reduced from 8% to 6% to more closely match average accounts depreciation.
  • Introduction of a structures and buildings allowance: New non-residential structures and buildings will be eligible for a 2% capital allowance where all the contracts for the physical construction works are entered into on or after 29 October 2018.
  • Restricting the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year to three times the company’s total PAYE and NICs liability for that year from 1 April 2020: This will help to ensure prevent any abuse of the credit.

You can also read the policy costings document in full here.


Alongside the Budget, the government has also published its feedback statement regarding its consultation on Enterprise Investment Scheme (EIS) knowledge-intensive funds, which formed part of its Patient Capital Review.

After considering all the feedback (you can read the QCA’s response here), the government has decided to take forward its proposals to introduce a new EIS fund structure targeted at knowledge-intensive companies, which will have the following features:

  • A minimum of 80% of funds raised must be invested in knowledge-intensive companies: This will ensure that the risk of inadvertent non-compliant investment threatening approved fund status is reduced.
  • Manager flexibility: Funds will have two years to deploy capital, with at least 50% of each raise to be invested within the first 12 months.
  • Clearer timings for tax relief: Investors will be permitted to set their relief against income tax liabilities in the year before the fund closes.

Draft legislation will be published in summer 2019, with the new fund structure being available from April 2020.

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