Our Tax Expert Group, in conjunction with our Share Schemes Expert Group, has prepared its annual proposals for taxation reform . These measures are designed to help drive private sector growth and generate job creation.
The UK’s departure from the European Union will bring major changes to the structure of the economy. With much uncertainty regarding what lies ahead, it is important that the government confirms its commitment to supporting small and mid-size quoted companies – the engines of economic growth and job creation. As part of this commitment, we encourage the government to build a taxation system that is competitive, simple and certain.
I. Creating a competitive tax system
To incentivise and enable smaller, growing companies to raise sustainable, long-term capital more cheaply and efficiently, we call on the government to:
- Level the playing field for capital raising by permitting all costs associated with raising equity to be tax deductible. Placing a £1.5m upper limit to target the relief at smaller companies and enabling the relief to be applied to IPO and secondary fundraisings would cost just £60.1m per year.
- Either remove the condition that officers and employees of a company must have at least 5% of the voting rights and ordinary share capital to qualify for Capital Gains Tax Entrepreneurs’ Relief or, if that is not possible, amend the 5% test so that it only needs to be met for a continuous 12 month period during the five year period ending with the date of sale, as with the Substantial Shareholdings Exemption.
- Ensure that Entrepreneurs’ Relief applies to the whole gain, regardless of whether the selling shareholder receives consideration in the form of a cash earn-out, shares or loan notes.
- Encourage employee share ownership in smaller companies through Company Share Option Plans (CSOPs). This could be done by allowing the exercise price to be at a discount or at nil cost, while retaining income tax relief only for any increase over the market value at grant; removing the three year holding period before options can be exercised with income tax relief, as well as all leaver and other early exercise requirements; and introducing a rolling three year £30,000 limit for all subsisting options.
- Permit non-executives taking shares as part of their remuneration to pay income tax only after the sale of the shares.
- Seek the state aid approval of Enterprise Management Incentives (EMIs) by the European Commission in time for April 2018.
- Allow funds to invest in AIM companies that qualify for inheritance tax relief so that individual investors are able to fully utilise this tax relief, while spreading their investment risk.
- Exempt or zero-rate from VAT any small-cap investment research that has been paid for by an institution to a broker.
II. Simplifying the tax system
In order to reduce the barriers to companies growing their businesses and generating growth, we call on the government to:
- Increase the Small Companies Enterprise Centre’s resources to reduce the complexity and improve timescales when using Enterprise Investment Schemes and Venture Capital Trusts.
- Continue enhancing the digital process for registering employee share plans and filing annual returns.
- Allow agents to register and self-certify employee share plans on behalf of companies.
- Introduce new rules to allow UK persons to make interest payments gross or at treaty rates where the person reasonably believes, at the time the payment is made, that the payee is entitled to relief in respect of the payment under double taxation arrangements.
- Extend degrouping charge reform to provisions relating to the intangible fixed assets, loan relationships and derivative contracts regimes.
III. Building certainty into the tax system
To give companies the confidence to make long-term investment decisions, we call on the government to:
- Introduce a bespoke binding ruling process that can consider queries on all aspects of UK tax law.
- Confirm that medium-sized groups are not required to compile contemporaneous evidence to support transfer pricing policies, unless they wish to do so.
If you have any suggestions about how the UK taxation system can work more effectively for small and mid-size quoted companies, please contact Callum Anderson.