The Quoted Companies Alliance Tax Committee, in conjunction with the Share Schemes Committee, has prepared proposals for tax reform ahead of the Chancellors' Budget announcement in April. The proposals are designed to help drive private sector growth and employment, particularly in the small and mid-cap quoted company sector. These include:
Encouraging long-term investment and funding for growth
We suggest the removal of the arbitrary 5% threshold for Capital gains tax Entrepreneurs' Relief for employees/officers of companies, funded by extending the minimum holding period for the relief from one year to three years. This will encourage the alignment of employee and management goals in driving growth and to promote fairness. We also suggest expanding this relief to long-term investors in SMEs to recognise all stakeholders that 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.
Simplifying tax rules to encourage economic growth
We have become increasingly concerned that some areas of tax legislation impose a disproportionate compliance burden on small and mid-cap quoted companies, including the worldwide debt cap rules, transfer pricing, senior accounting officer requirements, size tests in tax legislation, and disguised remuneration 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-cap quoted companies, which will help drive investment in the sector.
Creating a level playing field for equity and debt
The tax treatment of raising equity versus debt financing is one that has been a key feature of debates on the causes and consequences of the financial crisis of 2008. 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.