In association with:

A report by Prelude Group, Institute of Directors & Grant Thornton

Britain Unlocked:

A Tax Code for Global Ambition Overcoming Obstacles to Growth during the Tax Lifecycle of an Entrepreneur

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to

the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, the authors and distributors do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information

contained in this publication or for any decision based on it.

Copyright 2016. All rights reserved.

1

Foreword

Executive Summaryi. Recommendations

Introduction

Methodology

Taxation in context

Taxesi. Corporation Taxii. Employment Taxesiii. Business Ratesiv. Capital Gains Tax

Tax reliefs in context

2

3

6

11

12

1414202532

36

Tax reliefsi. Employee Incentivesii. R&D Tax Reliefiii. Business Rates Reliefiv. Capital Allowancesv. Entrepreneurs’ Reliefvi. SEIS & EIS

Conclusion & Acknowledgements

About the co-authorsi. Prelude Groupii. Institute of Directorsiii. Grant Thornton

Sources

Contents

38384247515357

63

64646566

67

One of the most important challenges facing the UK economy is the absurd complexity of our tax code. In less than 20 years it has more than

doubled in length and now runs to more than 11,500 pages – making it the longest in the world...in the coming years we need to see a far more radical

programme of simplification.

Lord Bilimoria of Chelsea, CBE, DL “

“

2

Entrepreneurialism plays a pivotal role in developing our vision of a vibrant economy. New ideas, coupled with fresh enthusiasm and ambition to challenge the status quo helps foster more dynamic markets for new products and services, and also fuels employment and keeps established players in their fields innovative and on their toes.

Foreword

The UK has a long and distinguished history in developing, deploying and disseminating new technologies and ways of working which challenge convention. Whilst the government has long championed and encouraged entrepreneurial pursuits, the complexities of operating a business in the UK have often proved the stumbling block for many entrepreneurs – not least those complexities relating to our tax regime.

Businesses of all sizes have an obligation to contribute to the costs of the society they wish to enjoy. Equally, it is important that tax policies are applied as intended to enable British businesses to be competitive on a global stage and attractive to inward bound investment. However, when the means of doing so are unclear because of a bewildering amount of regulation and codes, society as a whole misses out and trust in business and government is undermined.

As this report aims to demonstrate, there remains a substantial economic benefit to be unlocked for the UK if our tax regime were to be improved and simplified. Better awareness of the myriad programmes and reliefs introduced by HMRC for entrepreneurs, along with more efforts to simplify the system for paying taxes and claiming reliefs, would free up our entrepreneurs to do what they do best – innovate and grow. A simpler tax regime would also make it easier to collect the taxes that then fund the public services which keep our society functioning.

The UK’s entrepreneurial spirit and resourcefulness has guided us through economic uncertainties in the past and will no doubt prove invaluable over the coming years as Britain re-evaluates its relationship with the European Union. That said, creating an environment in which our entrepreneurs can reach their potential requires a regulatory and support system conducive to doing so. Identifying growth markets is one thing; having the time and resources to capitalise on them is another.

Working with entrepreneurs day-in and day-out, we understand the challenges they face. We see the UK’s tax regime as being a central component to all three areas of a vibrant economy and welcome this report’s findings and recommendations as a useful resource in helping shape the policies which would allow our entrepreneurs to play an even stronger part in shaping a vibrant economy.

Sacha Romanovitch CEO, Grant Thornton UK LLP

3

The UK is a great place to start a business: indeed, in 2015, 608,100 businesses were born; but whilst the number of new businesses started has grown steadily in recent years, the number that succeed in growing and scaling is still relatively small.1 This report examines for the first time the taxes, tax reliefs and the related administration faced by founder-led businesses over their lifetime. It also makes clear recommendations for what can be done to improve the existing tax regime.

Executive Summary

Increase simplification

of the system for paying taxes and claiming

reliefs and introduce self-certification where

possible

Introduce greater but targeted

flexibility for start ups and scale-

ups during crucial periods of growth

and encourage more micro and small

businesses to recruit

Increase awareness

of the various tax reliefs available and include

details through regular letters, emails and digital

communications to businesses

Greater simplicity, awareness & flexibilityTo reduce the cost, time and potential pitfalls associated with compliance, implementation and payment, we urge HMRC to:

This report aims to illustrate, using real-life case studies of growth entrepreneurs, what the effect of various combinations of taxes and reliefs have meant in reality, in terms of business growth, job creation, tax generation, and willingness to invest in those businesses. Although the entrepreneurs we spoke to are happy to contribute to what they feel is a broadly fair system of taxation, there are some pinch points and complexities that act as disincentives to growth. So this report aims to highlight where regulation and tax burden is creating unnecessary obstacles and the tax reliefs are insufficiently focused or generous. This report highlights how the system might

be improved but also explains where existing incentives are operating effectively, benefiting the wider economy.

Boost job creationHaving reviewed the effect of different taxes and reliefs over a business lifecycle, this report will show how key changes to the tax system would boost job creation, capital investment and tax collected for essential public services and infrastructure.

As the UK prepares to leave the EU, there is a great opportunity to reduce complexity, cut red tape and enhance the broader economic benefits of tax reliefs.

4

To create a level playing field for SMEs and incentivise entrepreneurs to keep scaling and starting new businesses, we urge HMRC to make some practical changes and consider some more radical improvements to the UK taxation system:

Raise the threshold for quarterly

Corporation Tax payments from

£1.5m profit to £5m to enable firms to better manage their cash flow to grow their business

Double the threshold of SEIS to £300,000

to secure cash flow in the make or break

first 18 months of operating

Liberalise EIS so that entrepreneurs get relief for cash or

equity investment in their own venture and enable more people to qualify, ie to finance a relative’s

business

Simplify all share schemes into one

simple online share allocation

scheme so it’s easier for

companies to set up and administer on their own

Introduce a new markets

tax relief similar to R&D Tax

Credits, to reduce the costs associated with

entering a new market

Extend National

Insurance Relief to encourage more

sole traders and micro businesses

to recruit

Practical recommendations to implement in

2017

Introduce Business Rates holidays and

significantly increase Business Rates

Relief to support retail firms

creating employment and revitalising town centres

Remove the cap on Entrepreneurs’

Relief to take away the tax

incentive to exit early and encourage more high

growth entrepreneurs to scale

Executive Summary

5

Replace Corporation Tax with a simplified

SME Tax based on accounting

profits with few adjustments apart

from capital expenditure to preserve existing capital

allowance tax relief, so SMEs are not caught

out by provisions designed for multinationals

Combine National Insurance with

Income Tax for those aged under 60,

to address a complex area of taxation for

SMEs and allow them to pay annually

Introduce additional

flexibility for SMEs on quarterly

payments to recognise the costs associated with staff

on-boarding and support cash flow during periods

of high growth

Radical recommendations for consideration and consultation

Introduce the US Style

’S Corporation’ system

bypass Corporation Tax with up to 100 shareholders

where profits are taxed based on shareholders and their shareholding, to remove the complex interface between the

taxation of the business itself and the remuneration,

bonuses and dividends paid to its owners

Remove Capital Gains Tax

on business assets and only retain CGT on non-business assets, to favour active business

investment over passive investment

Recommendations

6

An entrepreneurial nation

Since the 1970s, when we had fewer than a million businesses, the UK now has 5.4 million, with 1.3 million SMEs (firms with up to 250 people) employing 11.2 million2 (see number of new businesses graph). Last year alone we created 608,100 new businesses and we are on course to create even more this year.3 But this increased rate of business creation hides a more worrying fact. Of the five and a half million existing businesses, four fifths have no staff at all and fewer than five percent have more than ten.4 So why does this matter? Because whilst we are seeing more businesses start (and some will inevitably fail) we are still seeing very few grow significantly.

In other words, by the time you take out the long established FTSE100 and FTSE250 and

the larger, family, and corporate run businesses it’s likely that only around one in 20,000 of the adult population5 will start and grow a business to over 250 staff. If you include all the medium-sized businesses (50 staff plus) we are still only talking about one in 1000 of the adult population.

More employees, more tax revenueWith nearly 4.5 million sole traders this country is certainly a great place to start a business, but currently so few succeed at really scaling up.6 It’s vital we recognise the contribution this rare breed contribute to the economy not only in net new job creation but in the creation and delivery of an increasing proportion of the taxes that pay for our public services.

What part then does tax have to play in encouraging the right behaviors for society amongst these economic heroes? And should the tax system be focused on incentives aimed at sole traders (for example to recruit at least one more person) or focus instead on encouraging those who have already built a team to create even more jobs?

Number of new businesses 2011-2020 7Total businesses New businesses

7m

6m

5m

4m

3m

2m

1m

0

1m900k800k700k600k500k400k300k200k100k0

2011 2012 2013 2014 2015 2016* 2017* 2018* 2019* 2020*Year

* Forecast data

Introduction

UK ranked 9th in the world, in the Global Entrepreneurship Index Ranking (2016), ahead of Germany & China8

UK ranks third in the Global Innovation Index (2016), behind Switzerland and Sweden9

UK start-ups per year: 608,100 (2015) (Start-Up Britain)10

3

Tota

l bus

ines

ses N

ew businesses

7

Diseconomies of scale Most of us are familiar with the concept of economies of scale: the principle that as we scale our production unit costs fall making us more efficient and more profitable. This may be true in manufacturing or stock ordering terms but that is where it ends.

Rather than economies of scale, early-stage businesses inevitably face diseconomies of scale. In practice, this is typically what happens for most start-ups: We start from the kitchen table with no significant fixed costs; once we employ our first staff we incur fixed salaries and overheads; we then typically move into offices incurring further costs – rent, insurances, telecoms, hardware, software and so on; and as we grow our team we typically face another step cost as we hire more senior managers and move into larger offices. Along the way, different taxes and reliefs come into play – Employers National Insurance, AIAs, Business Rates, Corporation Tax, VAT, R&D tax credits, etc.

All this influences profit margins, which (aside from external funding) is what enables businesses to invest, grow and employ more staff (ultimately producing greater tax

revenues). Taxation and tax reliefs can be the difference between success and failure for a growing business.

There were 5.4 million private sector businesses at the end of 2015.12 Employing businesses increased by 35,000 and non-employing businesses by 112,000 across the year, with 3% annual growth for both groups.13 Total employment in SMEs was 15.6 million; 60% of all private sector employment in the UK.14

Growth in SME employers11

2000 2015

1200

1000

800

600

400

200

0Micro Small Medium Large

No

of b

usin

esse

s (th

ousa

nds)

SMEs drive 3x more job creation than the FTSE 100 in the UK15

Businesses born between 2007 and 2010 account for 61% of job creating firms and 36% of job creation16

From 1995 to 1999, there were 2.3 million extra jobs in new businesses in the UK and 85% of these were in small businesses17

3x

61%

2.3m

Employment from large businesses remained flat, compared to 3% annual growth from SMEs.

8

Contribution of different sized businesses to total population, employment and turnover, at start of 201518

Small

(BIS Oct 2015)

Medium Large

100%

80%

60%

40%

20%

0Employment Turnover Businesses

Research shows that fewer than 3% of start-ups both survive for a decade and enjoy a single year

of high growth. The problem now is not the quantity of entrepreneurial activity, but the ability to turn

that activity into high-growth scale-ups. Competitive advantage doesn’t go to the nations

that focus on creating companies, it goes to nations that focus on scaling companies.

Sherry Coutu CBE, Chair, The ScaleUp Institute19 “

“

Introduction

Often, taxes and reliefs are analysed in terms of their individual impact on the economy, revenues and business. However, entrepreneurs and businesses don’t deal with taxes and reliefs individually, but as a net influence (positive and negative) on their business. What’s more, depending on the sector, structure, size, and many other factors, the combined effect of taxes and reliefs can have a wildly varying impact upon business risk, growth and employment in different businesses.

One of the most important factors, that we believe is often overlooked, is the effect of different taxes and reliefs over a business lifecycle.

While some taxes kick in early in a business’s lifecycle (Corporation Tax, National Insurance and VAT), some come into play further down the line, and others are focused around the sale of shares or a business (eg Capital Gains Tax). Reliefs similarly kick in at different stages and thresholds of growth and various other criteria. So the combined impact is extremely difficult to comprehend.

This report aims to join the dots, drawing on the experiences of successful growth

entrepreneurs, in order to provide a more comprehensive understanding of how the tax system influences or inhibits growth and investment, and how we can improve it.

Duncan Cheatle Founder of Prelude Group & Rise To

SMEs accounted for 60% of total employment in 2015.

9

The big picture

Taxes ought to optimise revenues raised, be fair and be simple to assess and collect but it is notoriously difficult to have all three at the same time. Systemic efficiency in optimising tax revenues is a complex set of trade-offs. Lower taxes and higher reliefs boost innovation, business creation and agility - which allows businesses to invest, grow, and contribute more into the tax system. Equally, businesses have a responsibility to pay into government revenues to support the economy’s physical infrastructure and its broader socio-economic ecosystem on which they depend for their success, and from which they have grown. The competitive market forces that drive the economy need to be managed and regulated but not excessively so. It is imperative to step back and take a strategic view. Instead of merely tweaking specific taxes, we need to take a broader view on the overall impact of business taxation upon the economy and its business and individual taxpayers.

In tax there is generally a ‘guilty until proven innocent’ perspective, with the burden of proof on the business owner. While the owner is encouraged to self-certify where possible to reduce the administrative burden on HMRC, in reality a system of highly complex tax regulation and implementation means they often need more guidance. We strongly believe, for example, that HMRC should issue guidance on what they consider to be authentic tax planning as well as what they regard as unacceptable tax avoidance.

That also means promoting transparency by business, and focusing on the overall substance of their financial and tax arrangements rather than the particulars of the form transactions take. But to get to substance you need to understand the hard parameters that frame it - so it’s the

form, not substance, that is generally entrenched in law (an exception being the General Anti-Abuse Rules enacted by the coalition government). And that’s where so much of the confusion about multinationals’ tax affairs comes from, and the increasing distrust of both the general public and business in these matters.

Every tax relief has a champion, a sector or group of businesses who benefit from it; and sometimes that can be the difference between life and death for those that rely on it. In 2012, the Chancellor HMRC included in the Finance Bill the repeal an 80-year-old tax relief on black beer, a particular kind of traditional alcoholic beverage produced by just one Yorkshire firm. The doubling in price that occurred severely affected that producer. Once tax laws are entrenched, fair or not, they, very understandably, have their defenders and become harder to rescind or change without having negative impact.

Fairness isn’t objective, it’s a matter of perspective. Think, for example, about reliefs on charity donations. While some will see the positive impact of the charity created and the desirable activities funded, others will only see the tax breaks the initial individuals received.

In this report we want to look at the big picture; exploring the taxes and reliefs that affect the vast majority of entrepreneurial businesses and the pros and cons of both these reliefs and the tax system as a whole. With the caveat that there’s no such thing as a perfect tax system, we believe that all three objectives can be improved on: that we can create a simpler tax system, that it can be fairer, and that, by getting the balance of incentives and taxes right, tax revenues, employment and economic growth can be increased.

Stephen Herring Head of Taxation, Institute of Directors

10

of the economy. Business premises no longer reflect the size or impact of a business and so it is an anachronistic measure which penalises specific sectors and size of business. And corporation tax – taxing profits at the location of a business’s HQ – was designed in the 1920s but no longer stands up in today’s global, digital economies. It is time to consider whether a simpler system would better fit today’s economy and restore fairness and revenues and reduce administrative costs: something like a straight tax on turnover that captures the value of activity where it occurs.

Alongside this, a fundamental look at tax reliefs is also overdue. Many of these are additional complexities or sticking plasters to try to correct problems caused by already complex and anachronistic tax regimes. Equally, little evaluation has been done by successive governments of the economic benefits of tax reliefs. It would help to start with a clearly defined set of aims for tax reliefs to encourage investment in growing businesses, encourage reinvestment when assets are sold; and support growth and productivity though exporting, skills, employee engagement and capital and research investment.

Vibrant economy

At Grant Thornton our purpose is to help shape a vibrant economy. We define that as one which promotes trust and integrity in markets, that unlocks long term growth in dynamic businesses, and where people and businesses can thrive. Tax is central to all three: fair and responsible taxation is currently at the heart of public concerns about trust; tax can both hinder and unlock long term growth; and tax revenues pay for the public services and infrastructure which enable people and businesses to thrive.

This report sets out a clear and evidence-based set of recommendations for simplifying the tax regime and incentivising growth for entrepreneurs. It also asks fundamental questions about the nature of taxation in the UK, particularly as we leave the EU. Business, government and society needs to consider, from first principles, what the right balance is between taxing profits, sales, employment and property. Our current tax system taxes all of these. Tax on jobs and employment outweigh any other business taxes. We have to consider whether this is the best way of unlocking growth.

At the same time, tax on business premises (business rates) is based on a pre-digital model

Introduction

Jonathan Riley Head of Tax, Grant Thornton UK LLP

11

This report looks at the macro picture using Treasury and other publicly available data to explain the various business related taxes and reliefs in relation to scaling businesses. We estimate the contribution of taxes from SMEs versus larger companies and review these key taxes and significant tax reliefs in the context of the lifecycle of an entrepreneur and their business (excluding VAT & IHT). We use real life case studies to illustrate the impact of taxes, administrative costs and related reliefs on the growth of their business.

Methodology

The cost of tax administration for business owners

46% personally spend 1 to 5 days each year handling the administration and compliance around taxation of their business, and 15% spend 6 to 10 days

43% spend between £1,000 and £5,000 on tax related accountancy services each year, and 15% spend between £5,000 and £10,000

Source: IoD Survey, September 2016, 906 respondents

The businesses included in this study are members of The Supper Club, a membership club for founders and CEOs of businesses turning over at least £1m. They are representative of high growth companies and represent a cross-section of industries and sizes.

SME surveyData in this report came from a survey to members of the Institute of Directors. The IoD surveyed 925 members from September 15th - September 29th 2016 via its online Policy Voice platform. The survey responders broadly match the IoD membership, which is 70% SME, and drawn from across business sectors and the regions of the whole United Kingdom.

29% said increased guidance and advice on qualifying for reliefs would have the greatest impact on the time and costs associated with tax related admin

28% said clarification on what constitutes acceptable tax planning as opposed to aggressive tax would have most impact on their cost and time

12

While open data should drive greater transparency and accountability in the UK tax regime, the range and volume of information must be pulled together into a digestible and coherent whole for meaningful recommendations. This report combines key data and analysis with an illustration of the impact of taxes, reliefs and associated administrative costs on real growth businesses, plus actual financial information, to support simplification of the tax system.

It is our hope that, by highlighting the burdens and benefits, HMRC can not only make Britain a more benign environment to build and scale businesses but recognise their contribution to the Exchequer and wider economy. This in turn will create the transparency and accountability needed to motivate desired behaviours from businesses of all sizes – from scaling SMEs to multinational corporations.

The tax lifecycle of an entrepreneur Founder led businesses start with nothing and then go on a journey recruiting, paying taxes, claiming reliefs and investing for growth. In order to highlight where different taxes tend to kick in, we have assumed the example of

a growth business - one that is seeking to expand rapidly as this type of business most positively affects jobs and GDP growth.

In each of the sections that follow, first on tax and then tax reliefs, we’ll use real-world examples to illustrate the impact of these taxes on entrepreneurial businesses at different stages of their growth - whether in terms of a rise in sales or profit, job creation, expansion, or innovation.

Clearly businesses go through a range of different lifecycles and, as we pointed out in the introduction, very few scale up. Therefore, understanding the lifecycle of an entrepreneur is key, and understanding where the burden of tax applies during that journey is vital.

Taxation in context

Total tax take (over 5 years)20

Total HMRC receipts

£600bn

£500bn

£400bn

£300bn

£200bn

£100bn

009-10 10-11 11-12 12-13 13-14 14-15 15-16

(forecast)Year

of small firms with over 5 employees plan to grow their headcount over the next two years21

of small firms with fewer than 5 employees plan to grow their headcount over the next two years22

35%

50%

13

Sale of business. Pay Capital Gains Tax

Turnover Profit Staff

Register for VAT Start to pay Income Tax/National Insurance

Move into serviced office space. PAYE & National

Insurance on first employees

Business incorporated. Start to pay

Corporation Tax.

Move into own office.Start to pay

Business Rates

Investing in EIS & SEISInheritance

tax

Invest using EIS/SEISBusiness sold

New start-up / investment

Future...

Tax lifecycle of a high growth entrepreneur23

£6m

£5m

£4m

£3m

£2m

£1m

0

60

50

40

30

20

10

0Year 1 Year 3 Year 5 Year 7 Year 9Year 2 Year 4 Year 6 Year 8 Year 10

After spotting a gap in the market for coordinated party accessories, Mark McCormack and Clare Harris set up Talking Tables in 1999 just in time for the millennium. Now a £12m turnover business, with a third of sales from exports, it is well on its way to achieving its £20m milestone. Co-founder Mark McCormack, who oversees the financial and technical areas of Talking Tables, was firmly in the ‘Remain’ camp but admits that the business has benefited from the fall in the value of sterling since the EU referendum as it looks to grow international sales. “Having invented our market we want to expand into new geographies before too

many more competitors emerge.”

While R&D tax credits have supported growth, Mark believes more can be done with a similar scheme to incentivise export. “It’s a shame that you can’t claim the costs associated with travel when you’re developing a new product that meets all of the criteria for innovation under the R&D Tax Credit Scheme. UKTI is great when you’re starting up but the trade missions can get expensive – so it would be good to see more relief for the costs associated with entering new markets. It would be an incentive to continue investing in existing markets while exploring new ones. TAP funding is restricted to just 6 exhibitions.”

Mark McCormack Co-founder, Talking Tables

Export Incentives & Support

talkingtables.co.uk

14

Corporation Tax is paid on the profits reported by companies. As a result of substantial cuts over the last several years, the UK now has one of the lowest corporation tax rates in the world, and the lowest in the G20, with further cuts due in the coming years. OverviewCorporation Tax raises revenues of £43 billion, which is 8.3% of the total tax take in 2015.24 Since 2010, rates have been substantially cut and simplified by, for example, eliminating the two tier rate in order to incentivise growth and investment.

The main rate of Corporation Tax (applicable to companies with profits over £1.5 million) has fallen from 28% in 2010 to its current universal (2016) rate of 20%, due to fall further

Treasury total take of Corporation Tax27

Treasury total take Main tax rate

£45bn

£40bn

£35bn

£30bn

£25bn

£20bn

0

30%

25%

20%

15%

10%

5%

007 08 09 10 11 12 13 14 15

Year

Small companies’ tax rate

Corporation Tax

to 17% by 2020.25 The lower rate of Corporation Tax (applicable to companies with profits under £300,000) has fallen from 21% in 2010 to 20% today, and is due to fall to 17% by 2020.26

As well as reducing tax liabilities for businesses, bringing the two rates in line has abolished the higher marginal rates for profits between £300,000 and £1.5 million, which stood at 29.75% in 2010.

The policy emphasis is on enhancing business conditions and attracting investment over the long term above prioritising immediate revenues. Whilst there is a correlation of increased Treasury receipts from corporation tax over the same period of reduced tax rates, the cause is likely due to the recovery after the 2008 crash.

Reliefs for various business activities and sectors can be claimed against Corporation Tax, which have been introduced or extended in recent years - such as Research and Development Tax Credits.

Corporation Tax revenue vs relief28

Corporation Tax revenues raisedCorporation Tax summed value of reliefs

40bn

30bn

20bn

10bn

02013

Taxes

15

Problems with Corporation TaxOne area of considerable impact is that of making payments on account. At a critical stage of growth businesses have to suddenly absorb a substantial hit to their cash flow by having to start paying tax on account. For companies with annual profits of less than £1.5 million, Corporation Tax must be paid

within 9 months of the end of the company’s accounting period. Once a company’s profits for an annual accounting period surpass £1.5 million, however, the tax has to be paid on account in quarterly instalments, starting 6 months after the first day of the accounting period.

SMEs said accelerating the planned reduction in Corporation Tax would have the highest impact on their business29

34%

Corporation Tax may have been fit for purpose when it was introduced in 1965 but the world has changed since then. Large businesses are online, off shore and global and Corporation Tax hasn’t evolved fast enough to keep up with this change. So large businesses don’t pay the tax but UK based SMEs still get caught by it; so not only does it fail to generate revenue from large corporations for the Government but also gives them an unfair advantage against their smaller competition. This tax is also bad for UK Plc as it drives companies off shore, taking tax and employee consumption revenue with

them and drives good brains from our shore in the process. There is a tax already in place which would remove this advantage for large businesses and that’s VAT, which captures all transactions in the UK. So instead of rebating VAT, an equivalent amount could be retained by the Government.

This system would encourage companies to come back on shore as the benefits would be removed and will also allow SMEs the same even hand as large companies, which is surely a more democratic approach for any taxation system.

Dominic List Founder, Comtact

Scrap Corporation Tax

comtact.co.uk

16

Corporation Tax

Taxes

Chris Ash set up his games development company at the age of 29, selling the business 9 years later. He’s very open that tax considerations were low on his agenda at the start. “I just didn’t want to work for anyone else, that’s the honest reason why I started the business! If I started again I’d be much more informed about all of this, obviously.”

Strong growth meant the company quickly found itself posting strong profits. But up against international competition, they found an uneven playing field when it came to Corporation Tax. “We were at a slight disadvantage when we grew larger because we were domiciled in the UK. In contrast to our competitors we were paying tax at about 30% rather than some of our competitors who were paying 2%. The reality is, to compete we would have had to go offshore eventually and that ultimately happened in the sale process when we were bought by a company based overseas.”

But, setting tax rates aside, Chris points out that the administration of Corporation Tax can create major cash flow issues for a rapidly growing business. “There’s a jump with Corporation Tax. To start with, you’re paying it effectively 18 months after it accrues. Then there’s a threshold where you have to pay it quarterly on account. That can easily create huge difficulties with cash flow for a business. You suddenly have to find 20% of your profits up-front to pay to the government, which you’re not necessarily anticipating.”

“Because we’d already decided that we were going to sell the business, our business strategy at that point was focused on optimising profits, rather than investing heavily in the business. But if we had been looking to grow the business more (and ultimately contribute more in Corporation Tax!) that would have caused problems for us. We would have had to raise extra investment to keep us on that track, without a doubt. It’s a £300-400,000 hole to plug, which is massive for a growing business.”

Chris Ash Founder, Ash Gaming

Corporation Tax vs cash flow

ashgaming.com

17

Tax on year 3 profits30

Corporation Tax year 1 Corporation Tax year 2 Corporation Tax year 3

£1.5m

£1.25m

£1m

£750k

£500k

£250k

0Y1,Q1 Y1,Q2 Y1,Q3 Y1,Q4 Y2,Q1 Y2,Q2 Y2,Q3 Y2,Q4 Y3,Q1 Y3,Q2 Y3,Q3 Y3,Q4 Y4,Q1

Tax payable dates

Tax

due

(20%

pro

fits)

Taxing times: At a key stage of growth, scaling businesses face substantial accrued taxes.

Profit £000

Corporation Tax due £000

Payment dates

1,250

250

1 October, year 2

4,000

800

1 October, year 3

4,500

900

14 July, year 3

14 October, year 3

14 January, year 4

14 April, year 4

Year end, year 1 Year end, year 2 Year end, year 3

Source 31

18

The requirement of companies to pay their corporation tax liabilities upon a quarterly instalment basis is unnecessarily restrictive and impacts upon medium sized groups which ought not to be expected to forecast their taxable profits every few months. A threshold of £1.5 million profits per annum to pay by instalments may sound sufficient at first sight. However, if the group has a parent company and four regional trading subsidies, for each company the threshold is £300,000 (i.e. £1.5 million divided by the five companies in the group). Accordingly, if the four subsidiaries made a loss of £100,000 in aggregate but the parent company made a profit of £1.6 million it would potentially fall within the quarterly instalment regime even though the group was within the threshold as a whole. There is some complex legislation on this matter, generally requiring medium sized groups to pay for tax advice.

Raise threshold for quarterly tax paymentsBy raising the threshold for quarterly tax payments from £1.5 million profit to £5 million, linked to inflation, the same revenues will be received and simply changes the profile of these payments. This would enable firms to better manage their cash flow and avoid making significant advance payments to HMRC at a time when they need cash to grow their business. Businesses can be disincentivised to grow to the next level when financing is directed to paying tax liabilities instead of boosting investment.

This would protect SMEs which are more vulnerable to cash flow problems. The failure to uplift this threshold in line with inflation has dragged an increasing number of smaller firms into the advanced payment of Corporation Tax. This measure would have a one-off impact on the presentation of the outlook for the public finances, but in the medium to longer term this move would help to make payments far more manageable for SMEs at no cost to the Exchequer.

Recommendations

Allow upfront tax payments to be based on last year’s profitsTax payments made up front should be based on last year’s liability, not forecast profits for the current year, to reduce the compliance burden. This would enable firms to better manage their cash flow and avoid overpaying to HMRC at a time when they need cash to grow their business. For those SMEs that remain within the regime, an option should be given to pay corporation tax each quarter based on last year’s profits (with the ability to reduce payments if forecast current year profits are lower – similar to income tax self-assessment). This would avoid the compliance burden of estimating the liability each quarter, reduce the associated administrative cost, and minimise the worry that the company has underpaid.

Corporation Tax

Taxes

19

Replace Corporation Tax with an SME TaxCorporation tax was introduced in the 1920s as a tax on profits, levied at the location of the business HQ, and no longer reflects the nature of global business. This impacts all three aims of tax in terms of fairness, simplicity and revenue. The same tax code applies to both SMEs and MNCs (multinational companies) but SMEs get caught out by provisions that are more relevant to larger and more complex businesses. HMRC can afford to be more generous to SMEs at little cost to the public purse.

To address barriers to growth of small to medium sized businesses without creating unfair advantages for multinationals, we recommend the introduction of an SME Tax. We recommend that corporation tax is replaced with an SME Tax based on accounting profits and adjusted for capital expenditure. To qualify, the business must not be in a prohibited area such as legal, accounting, or financial services, broking, banking, financial services, offshore oil exploration, or fund management.

20

Much is said about the jobs created by founders but little about the associated taxes collected as a result that pay for public services. Our last report, ‘The Unsung Heroes of Business’, found that the total tax contribution of the seven entrepreneurs featured was £104.2m – which would have paid for 4,910 nurses for a year when it was published in 2012. This study found that the largest elements of this were VAT and employment taxes.32

OverviewEmployment taxes amount to £274 billion and account for 52.2% of total tax revenues.33 That’s divided between income tax of £163.7 billion, and national insurance contributions from employers and employees of £110.3 billion.34 In the UK, over 60% of private sector workers are employed by SMEs (a total of 15,611,000) and that proportion has been growing.35 The number employed by corporates has fallen from 41.5% of all private sector employment in 2010 to 39.7% in 2015, while the number of public sector jobs has plummeted by over 1 million since 2009, down to 5.34 million in 2016.36 In contrast, the number of individuals working for an SME has risen to 60.3% of all private sector employment from 58.5% in 2010.37

Current trends suggest SMEs are likely to create 65% of all new jobs over the next decade.38

Self-employment and working for SMEs will increasingly become the bedrock of the UK

economy, and finding ways to enable small businesses to recruit and employ ever greater numbers will, beyond offering an increasing range of work opportunities to individuals, substantially boost GDP growth and tax revenue. This is particularly important on the lowest rungs of the ladder: where sole traders

Current vs potential SME employers40

Potential employed if each sole trader hired one employee

Employed

5m

4m

3m

2m

1m

0Micro Small MediumSole

Traders

Empl

oyee

s

Employment Tax

Taxes

Treasury total take of employment related taxes39

Treasury total take Basic rate Higher rate

Additional rate

£170bn

£160bn

£150bn

£140bn

£130bn

£120bn

0

50%

40%

30%

20%

10%

5%

007 08 09 10 11 12 13 14 15 16

Year

Basic rate taxpayers contributed £140bn to the Treasury in 2015.

21

£3,000 as an ongoing allowance) said that the monies would be absorbed into the general revenues and expenditure of the business, with a quarter (27%) intending to use it for a specific purpose. Of the employers that have used or plan to use the monies from the Employment Allowance for a specific purpose, a third (34%) plan to use it to take on additional staff. Other uses or intended uses included capital investment (36%), non-capital investment (27%) and wage increases (25%).41

are looking to recruit their first employee, or where micro businesses are seeking to expand to the next level of growth. If just half the sole traders in the UK employed just one employee, that would provide 2.4 million additional jobs, eliminating unemployment.

Costs to businessThe main costs to businesses are Employer National Insurance (currently set at a rate of 13.8% in 2016/17) and the costs of administering PAYE and Employer NI. The costs of administration, particularly in the case of sole traders employing their first member of staff, this can require a considerable investment of time up front in order to understand and set up the necessary processes, as well as an ongoing commitment. While this is less of an issue for larger scaling businesses, this can act as a substantial barrier to employment for micro businesses (employing fewer than 10 staff). The recruitment of talent is one of the key indicators of success but HR legislation and managing people are hurdles to overcome.

Just over half (53%) of employers claiming Employment Allowance (where employers can reduce their Employer NICs bill by up to

National Insurance contributions42

Treasury total take Main contribution rate

£115bn

£110bn

£105bn

£100bn

£95bn

0

12%

10%

8%

4%

2%

0%07 08 09 10 11 12 13 14 15

YearEncouraging sole traders and micro businesses to recruit will boost NI contributions.

A vast majority - 85% - of all the jobs created in recent times have been created by

smaller companies. If you look every week at the newspapers, it’s large businesses making hundreds or thousands of redundancies. They are the ones

who are actually outsourcing and automating, and not creating the jobs.

Luke Johnson, Chairman, Risk Capital Partners43 “

“

22

As CEO of social media agency Immediate Future, Katy Howell helps big companies like lastminute.com, Fujitsu, and Sony to optimise social communications and measure their commercial impact. As a recognised authority in this area, with 25 years’ experience in marketing, Katy trains, mentors and speaks at events around the world.

One of the key challenges for this award- winning business is keeping up with demand for its services, as Katy explains: “It’s a shame HMRC are so inflexible about when to pay VAT, corporation tax and PAYE, because it can deter fast-growth businesses like ours from recruiting. Like a lot of firms, particularly in digital media, we are often paid 60 to 90 days after winning the business. That’s three months of paying taxes and salaries without being paid for services. Because HMRC doesn’t recognise

the strain that puts on cashflow, we are constantly faced with a recruitment dilemma. Do we invest upfront in recruitment to take on more business or slow down growth so we don’t put too much pressure on existing staff?”

Pay quarterlyKaty is passionate about training the next generation of social marketers and doesn’t resent paying all of the associated contributions. “I’m not asking for a reduction in tax, just more flexibility to recognise cashflow challenges for high growth businesses,” she says. “Instead of imposing fines immediately for late payment, let us pay quarterly. To recognise the recruitment and on-boarding costs associated with new staff, introduce a PAYE holiday for all new permanent staff for the first three months. This will support cashflow at crucial points and, ultimately, encourage more scaling companies to create more jobs.”

Katy Howell Founder, Immediate Future

More flexibility on PAYE, Corporation Tax & VAT

Employment Tax

Taxes

The current NICs system no longer supports the UK’s flexible workforce model, diverse business structures and flexible reward; the inherent complexity of NICs

means the regime is not well understood by employers or individuals, and is complex to administer

Office of Tax Simplification44 “

“

immediatefuture.co.uk

23

LOGO

Since Diane Young bought out the founders of Glasgow-based Scotmedia in the late 1990s, and re-branding as The Drum, it has become a multi-award winning media business for marketers, which now runs Europe’s best-read marketing news website as well as providing branded content, video production, events and awards within its portfolio of services. Its Recommended Agency Register now has over 30,000 ratings.

A strategy developed through self-education and peer learning has paid dividends, driving impressive growth in recent years; but survival in the early years wasn’t helped by tax burdens like National Insurance.

“NI is challenging for any business that has to balance paying staff, suppliers and HMRC each month; the government tax take for our business is £77k this calendar month alone,” says Diane. “Despite a good payment record on PAYE and NI, HMRC has been over-zealous in assuming guilt over innocence. In the early days of The Drum, our mantra was ‘staff first, government next’ and paying HMRC before suppliers like printers could have been costly if we couldn’t publish. HMRC should take payment history, debtors and regular communication into account to offer more flexible terms when there are cashflow challenges.”

“Employees don’t understand NI and what it’s for and they certainly have no concept that there is another 14% cost on top of their headline salary. Add to that the new requirements for us to pay staff pensions and you find you’ve got a real disincentive to recruiting. The Employee Allowance is too small to make a difference. From an employee point of view it makes more sense to have a single income related tax, and from a company point of view I would love to see the employer NI scrapped in favour of a higher corporation tax. It comes off the bottom line and it’s transparent for both employees and employers. For earlier stage businesses it means that they will be paying tax only when they have managed to succeed, not when they really need to keep costs low in order to succeed.”

Invest in future jobs“At the end of this month we will be paying a chunk of corporation tax on our profits and that is fine, but when I look at the total of the NI (employer and employee) and the PAYE, I can see that the government has actually made more money in the last 12 months from the company and its staff than we get to retain as a business. And that doesn’t take into account rates, VAT generated and the tax on profits. That’s not helpful for re-investing for the future to build our international trade and UK staff numbers.”

Diane Young Co-founder, The Drum

Incorporate National Insurance into Income Tax

thedrum.com

24

Many employees are unaware of the taxes employers pay on their behalf to HMRC. Putting taxes that employers pay on their pay slips would enable greater understanding of the fact that employers pay a great deal more than salary (and it’s not just the employee who is paying).

To encourage more scaling firms to create new jobs, to support cashflow at a crucial time and recognise the costs associated with new staff, introduce a PAYE holiday for businesses hiring within the next 12 months and introduce quarterly payments.

To promote greater simplification and transparency, we recommend that Income Tax and National Insurance should be merged for those under the age of 60. This will address issues around a complex area of taxation for SMEs as National Insurance is based on pay date while Income Tax is annual. SMEs can overpay, i.e. when there are two employments, and have to reclaim, which adds an unnecessary burden. This solution also ensures that no one over 60, or in receipt of a pension, pays a higher rate of Income Tax.

Recommendations

Employment Tax

Taxes

25

Business rates are applied on the use of commercial properties, whether offices, shops or most other non-domestic properties. As a particular hurdle to start-ups looking to open their first office or retail space, the implications of this tax have been further complicated in recent years as businesses have increasingly turned to the online space.

OverviewBusiness rates raised a total of £27.5 billion in tax revenues in 2015, 5.3% of total tax take, with revenues divided between local authorities and central government.45 The question is whether we are collecting it from the right people, and in the right way.

One of the big questions around rates is: when the way we shop is changing so dramatically, is this really an appropriate tax for how we now consume and how businesses operate? The move to online is the most significant factor here, but there are other considerations. For example, in rapidly changing and highly competitive markets, many entrepreneurs want to ‘test’ their products in the marketplace before fully launching. Pop up shops and similar provide excellent opportunities for this, yet when business rates have to be covered straight away, and for an extended period, flexibility is curtailed.

The UK’s shop vacancy rate was 12.4% in July 2016, according to Local Data Company, business rates have come into more focus.46

One of the principal flaws in the system is that rates are only scheduled to be revalued every five years and even this has not happened for the latest revaluation which took two years longer. This means that actual rents and business rates can desynchronise significantly over this time, leading to huge disparities in the relative rates in different areas. This delay also means that rates are invariably behind the curve of business development, for example, ‘retail’ premises are no longer as distinct from ‘distribution centres.’

Another consideration is the associated socio-economic impact of physical premises, aside from the success of individual companies, i.e. the importance of the high street to local communities. Rates actively disincentivise the creation of new businesses setting up on the high street, as opposed to online, and make it harder for existing businesses to thrive in the very areas where it’s already hardest due to high rents.

Business Rates

Taxes

Business rates47

Treasury total take Small business rate

Higher rate

£28bn

£26bn

£24bn

£22bn

£20bn

0

50%

48%

46%

44%

42%

40%07-08 08-09 09-10 10-11 11-12 12-13

Year

Rising rates actively disincentivise small businesses setting up on the high street and creating new jobs.

26

Costs to business

Rates are paid by businesses with physical premises, based on a proportion of rental costs, and so affects retail firms above all. In addition, because rates are a fixed, upfront cost, rather than a variable tax based on profits, like corporation tax, they disproportionately affect growing SMEs as it requires significant investment before profits are realised.

Alongside rent costs, this produces a significant barrier to growth. This applies even to modest expansion, but it is hardest for firms seeking rapid expansion.

For small businesses, rates in England are based on a centrally set multiplier of 48.9% of rental value (48.4% in Scotland). For retail firms with physical premises, this tax might form as much as half of their tax bill, and in some areas be more expensive than rent, as rents fluctuate and rates fail to keep up with those changes.

The overall sharp increase in the cost of commercial property, particularly in London and the South-East, has resulted in rates rising much more rapidly than associated business growth taxes. For example, PwC found that between 2008 and 2010, the rates of the ‘Hundred Group,’ made up of Britain’s largest retailers, rose by an average of 30%. In contrast, corporation tax payments increased by 6%, partly due to corporation tax rate reductions and newly introduced tax reliefs.48

The latest revaluation of Business Rates has been described as the largest change in a generation, with rateable values now reflecting the surge in property values in London and the South East. Looking at how new valuations might impact retailers, comparing rates in 2015 with rateable values in 2008, Colliers International claims that 324 retail centres will see a decrease in business rates, 71 will pay the same, and 76 will see an increase. While Dover Street in central London will see a rateable value of 415%, Newport in South Wales will see a cut of 71%.

Pop-up opportunities

According to Cebr and EE’s annual Britain’s Pop-Up Retail Economy 2015 report, the pop-up retail sector is growing at 12.3% with a turnover of £2.3 billion and an estimated 10,000 pop-ups employing over 26,000 people. The report also found that pop-ups now account for 0.76% of total UK retail turnover, up from 0.6% the year before, an increase of more than £200 million in sales. If local government is given the

power to set business rates depending on their locality, then they would be able to tweak the rates to encourage pop-up opportunities and this flexible leasing would allow them to fill the empty spaces on the high street. However, not all pop-up shops are occupied by SMEs as some large retailers open them in peak seasons in localities where they do not have a traditional presence.49

Business Rates

Taxes

27

Jonathan Quin has been running businesses since he was 16, running ventures on the side through university before working for a couple of banks to get some experience. Vowing to start up on his own before he was 30, he founded World First at the age of 29. So what does he wish he knew then that he knows now? “There are lots of things but in relation to this report I only had a very basic understanding of the taxes we were going to have to pay and virtually no awareness of the reliefs.”

While Jonathan is generally supportive of the UK tax system, and making a fair contribution to public services, it has presented some obstacles to growth. “It felt like business rates hadn’t been updated for the current markets and there’s no adjustment for length of lease.

We did challenge the rateable value once but it didn’t feel like it was a very commercially driven system. We have always tried to have teams sitting together in one office but the high rates in Central London do make having people elsewhere more attractive”.

But has it prevented investment in growth? “The big problem is that as we’re fast growing it’s really difficult for us to predict what size of office we’ll need. On a ten year lease for example we don’t know what size we’ll be in two years let alone ten years, and it’s very expensive to kit out office space, and the cost of moving is very high. If there was a way to have more flexibility in space that would be very good, and part of that is obviously rates – it’s not just rates in isolation, but as a package of considerations that might put us off expanding, or delaying decisions if it’s not cost effective.”

Jonathan Quin Founder, World First

Business Rates vs employment

Turnover rents

One entrepreneur spotted small retailers in a US shopping mall that in the UK would not have been able to afford top end mall space. When asked how they could afford to be there, they explained that there is a system where you pay rent of 2% of till revenue. This allows them to compete in a high-traffic market –

in the UK they would be priced out. China also has a similar system of turnover rents. Employing such a system in the UK would allow smaller businesses to compete against more established high street brands, and also allow them to gain a presence to compete against online competition.50

worldfirst.com

28

Rateable value bands

£0 - £4,999

£5,000 - £14,999

£15,000 - £24,999

£25,000 - £49,999

£50,000 - £99,999

£100,000 - £249,999

£250,000- £499,999

£500,000 - £999,999

£1,000,000 and over

Total

754

633

197

172

100

65

21

9

6

38.6

32.4

10

8.8

5.1

3.3

1.1

0.4

0.3

1,800

5,513

3,778

5,980

6,948

9,871

7,255

5,782

13,202

No. properties (thousands)

% of total number of properties

Total Rateable Value (£ millions)

% of total value

Table 1: Distribution of properties by rateable values in England (31 Mar 2016)51

Relief

Charitable occupation

Small Business Rate Relief excl. yield from supplement)

Empty and partially occupied premises

Retail relief

CASCs and non-profit

Other discretionary

Total

1.44

1.03

1.03

n/a

0.05

0.03

3.59

1.46

1.00

1.03

0.27

0.06

0.02

3.84

Cost (£billion) 2013-14

Forecast (£billion) 2014-15

1,957 60,129

39.0

9.2

6.3

9.9

11.5

16.4

12

9.6

22

Business Rates

Taxes

Table 2: Cost of Small Business Rate Relief to the Exchequer52

29

Ian Meiers’ company, a bespoke tailoring business, grew out of his frustration with the day to day of corporate life. “I was working in a bank. You’re a small cog in a giant machine and you just don’t feel like you’re really making an impact on anything. I had a deep rooted desire to start a business, and so decided to finally take the leap. I came up with several ideas and whittled them down to a tailor’s business – my mother had been a tailor so there was a bit of a family history there too.”

“I think the tax situation is not bad in the UK, if you compare it to other tax regimes internationally. I think that tax in the UK is relatively fair, especially with the recent changes – countries have to raise a certain amount of revenue, and you have to contribute.” In the early stages, though, Business Rates were a big disincentive to growth for Cad and the Dandy, as Ian explains.

“Business rates are pretty high! When we started we had a small space which was charged with rates included. When we took on our first shop, with £20,000 in rent we had to pay around 50% on top of that in rates, which was a huge jump. Then as you take on bigger premises, it becomes an even bigger problem.”

Review usage“The thing is, we use a lot of our space for manufacturing, rather than using it as retail space, which ought to attract a lower rate. So we’ve put applications in to the council to get our rates reviewed and lowered accordingly, but there’s over a year’s waiting list at the moment because they’re so swamped. There’s potentially a huge saving to be made, but we can’t access it. We applied over a year ago and we’re still waiting for the council to come and review the usage of our shops. We don’t even know when it will happen, and we’ve given up chasing!”

Ian Meiers Founder, Cad & The Dandy

Business Rates in practice

cadandthedandy.co.uk

If you look at any business or any future growth one has to invest in the new, and at the moment the new

can’t come on the high street because the cost of rates. I have been speaking to businesses where their rates have been more than their staff costs and their

rents together which is beyond ridiculous.

Mary Portas, Retail Consultant and Broadcaster53 “

“

30

Be over generous to SMEs to encourage growth of local high streets against the threat of onlineAs online retail thrives, the positive impact on the British economy, and the relative ease of access to markets by start-ups, is a good thing. But change also creates losers, and in this case those who are (relatively speaking) losing out are those businesses with physical premises, keeping our high streets alive. Why not counter that threat through adjusting rates to bring about a more equitable system and incentivise the business behaviours we want to see? We recommend the introduction of a flexible leasing system – perhaps borrowing from the serviced office model – that will incentivise landlords to offer flexible options that are more appealing to small shops and pop-ups. This could balance rental values with higher occupancy to restore confidence in declining high streets and retail centres.

We also recommend that Small Business Rates Relief should be more generous – at present it disappears at a rateable value of £15,000pa but we recommend that the total exemption is increased to £25,000 with tapering relief applying up to a rateable value of £50,000. This would also differ depending on the number of shops operated. As Table 1 illustrates, of the total Rateable Value for commercial properties of £60bn, only £17bn relates to properties with a rateable value of less than £50,000 and only £11.1bn to properties with a rateable of less than £25,000. Accordingly, reforms to assist SMEs ought to be very affordable, noting that a significant number of these lower value commercial properties will be occupied by subsidiaries of FTSE350 companies and multinationals which would not benefit from a reform focused upon benefitting SMEs.

Note also that the existing Small Business Rate Relief only cost the Exchequer £1bn in 2014/15 - less than the relief for empty and partially occupied properties.

The uniform business rate multiplier, fixed by Central Government, is applied to the VOA valuations to calculate the business rates payable upon each property alongside the various reliefs listed (as listed in Table 2 opposite). For 2016/17, the uniform business rates multiplier for England was fixed at 49.7p in the £.

Recommendations

Business Rates

Taxes

31

Localise Business RatesWe recommend devolving business rates as decisions on local business spending are (by and large) likely to be more effective when they’re made by individuals with a closer link to local businesses.The proposal to allow local authorities to increase the local business rates multiplier by up to 2% for business related infrastructure spending - which is supported

by local businesses - is sensible.

However, we believe that the local business support must be more transparent and democratically decided than the suggestion to refer proposals to the relevant Local Enterprise Partnership (LEP). For example, for the necessary approval process, votes could be given to the owners of business properties in bands broadly reflecting the increased business rates they would be required to pay.

Business Rates: Small Business Rate vs Higher Rate55

Small Business Rate Higher Rate

50%

40%

30%

20%

10%

007-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15

Year

Business Rates*54

£30bn

£25bn

£20bn

£15bn

£10bn

£5bn

007-08 08-09 09-10 10-11 11-12 12-13

Year

*Estimates based on figures for English revenues multiplied by the difference between England/UK rates in years for which overlapping data is available

Since Brexit, we are now in a new world, which means we should accelerate and deepen the changes to boost small business confidence

so they can grow and generate jobs. As it stands, business rates are not connected to the UK’s economic

outlook, and the current system prevents growth.

Martin McTague, Policy Director, Federation of Small Businesses56 “

“

32

Capital Gains Tax is paid on the profit made on the sale of assets and this clearly affects entrepreneurs on the sale of their business.

OverviewCapital Gains Tax is paid on the increase in value between the acquisition of an asset and its sale, minus certain deductible costs such as fees, cost of improvements and VAT and Stamp Duty Land Tax. The most significant impact on an entrepreneur is when they sell their business, although there can be other tax implications over the lifetime of a business.

Capital Gains Tax raised £5.6 billion in 2015, just 1.1% of the total tax take.57 Given this, there are questions over the value of the tax at all. At the very least, there is a case to be made for reducing or eliminating this tax on business assets so that it only applies to property and other assets that do not contribute to the economy, for example assets such as art and wine that are re-purchased.

The relatively low benefit to the Treasury when administrative costs are balanced against revenues must be weighed against the cost of dis-incentivising entrepreneurs from building a business to sell. This is particularly the case for more experienced, would-be ‘serial entrepreneurs,’ who have already exited one or more businesses so may have already used their lifetime limits for Entrepreneurs’ Relief.

Costs to businessCapital Gains Tax predominantly hits entrepreneurs at the point of selling their business, at which point the standard rate payable on the gain is 10% for basic rate taxpayers and 20% for higher rate taxpayers. A 10% rate can also be accessed on up to £10 million of lifetime gains under Entrepreneurs’ Relief (see section below for more on this). Incorporation Relief is another key associated relief for Capital Gains Tax (see below).

Capital Gains Tax

Taxes

Treasury total take of CGT58

Treasury total take Standard tax rate

Higher tax rate

£8bn

£7bn

£6bn

£5bn

£4bn

£3bn

£2bn

£1bn

0

40%

35%

30%

25%

20%

15%

10%

5%

007 08 09 10 11 12 13 14 15

Year

We approximate that the total tax revenues to which the proposed reduced CGT rate for business assets would apply are £2.53 billion (applied to 2014-15 revenues).

33

Assuming that the policy decision to tax capital, as well as the income that flows from it, is considered by government to be necessary, a tax on capital should be designed so that it optimises tax receipts for the Exchequer and, more importantly, does not prevent transactions which would be beneficial to the economy.

Capital Gains Tax is forecast to yield around £7bn this year for the Exchequer and much of this relates to the disposal of ‘passive assets’ such as shares and residential property buy-to-lets rather than assets used in a trade.59 There are already a number of tax reliefs in the legislation which assist business owners to eliminate or substantially reduce the Capital Gains Tax which would otherwise arise on the disposal of trading assets. These reliefs include Rollover Relief, Holdover Relief and Entrepreneurs’ Relief.

Reducing the rate of tax payable under Entrepreneurs’ Relief, decreasing the capital gains tax rate and increasing the annual exempt amount are reasonably affordable in fiscal terms in comparison to reducing the rates of Income Tax, Employers’ National Insurance contributions, Employees’ National Insurance contributions and VAT - which all cost around £4-5bn per

percentage point reduction.

Nevertheless, some assets which are treated by the tax legislation as passive do not benefit from these reliefs where let to third parties. Examples include hotels let to a hotel operator and commercial, retail and industrial properties let to trading companies. The higher the rate of Capital Gains Tax which would arise on the disposal of these assets to a more suitable owner or the business, the less likely the existing owner will agree to a sale, regardless of the overarching economic and business advantages.

We recommend that the business reliefs are liberalised to promote transactions in such assets and that the rate of Capital Gains Tax is reduced, especially where the impact will not significantly reduce the Exchequer’s tax take. In other words, HM Treasury should focus firstly upon the economic advantages of promoting transactions leading to business growth and secondly upon the tax take in aggregate (including both Capital Gains Tax and other taxes dependent upon transactions being undertaken such as stamp duty on land transactions) rather the Capital Gains Tax arising upon an assumed transaction.

Capital Gains Tax

Taxes

34

Andrew Noble knew he wanted to be an entrepreneur from his schooldays. “I had little businesses at school, I was involved in running entrepreneurs’ societies at universities, and was always interested in talking to entrepreneurs. It was what I was always going to do.”

But the creation of a business actually came about from a chance meeting. “I met a man who became a great friend and eventually my business partner. He was a doctor, who had some really interesting ideas about how we might provide health services to large corporates. We just took it from there.”

Before that, Andrew had been working in the City for ten years, as well as investing and helping with a number of startups.

Despite his quite extensive knowledge of the taxation system, and the various reliefs available, Andrew has still been tripped up by rules and regulations. “If I could make any changes to the system as it stands, I’d focus on simplicity. The problem is, if you’re starting up now, you’ve got SEIS, EIS, Entrepreneurs’ Relief, Investors’ Relief, VCTs, etc., which are just to do with investment. Then if I want to incentivise staff I’ve got EMI, ESS, and so forth. These are good things to have but it’s really confusing! I’ve spent thousands on lawyers trying to work it all out.”

“I’m now setting up another company, using SEIS. I’ve analysed every option. That’s meant

spending £6,000 with accountants just to assess our options, before we’ve even got onto the £7,500 or more that it will cost to set up the scheme. To set up an EMI scheme, we’re looking at another £4-6,000 in accountants’ fees, and another £5,000 for advice on R&D tax credits. Before I’ve even started that’s well over £20,000 spent in advisors’ fees, just to make sure I don’t get tripped up by the regulations!”

Andrew has been through the process of growing and selling a business in the UK, and questions how Capital Gains Tax operates in the UK. “There’s a question mark over whether one should pay any CGT at all,” he says. “Once you do away with it the whole question of whether to start up becomes a no brainer – the rewards to investors become much greater so it’s easier to attract investment, and the risk of taking a lower salary in a start-up is countered by the potential gains. If you look at different systems across the world, it’s not a crazy idea - New Zealand pays no CGT, for example, and Switzerland pays hardly any.”

But the reliefs on offer in the UK still offer significant benefits. “From my perspective, the fact that I can achieve somewhere between 0 and 10% CGT on investments (through Entrepreneurs’ Relief) is a huge incentive. If CGT was in line with income tax at 40 % or 45% I’d think very differently about investing. It’s in the government’s interest to keep it down, because there’s so much more tax collected through VAT, PAYE and Corporation Tax than through CGT.”

Andrew Noble Occupational Health Partners

Increase incentive to invest

Capital Gains Tax

Taxes

ohp.healthcare

35

To encourage relief in investment that stimulates business growth, we recommend removing Capital Gains Tax on business assets and only retaining CGT on non-business assets like listed company shares, residential property, art, wine, etc.

Alternatively, we recommend raising the Capital Gains Tax threshold substantially. The relatively high administrative costs of collecting Capital Gains Tax on smaller gains could be eliminated if the threshold were to be raised to, say, £50,000, without substantially reducing the total tax take.

Recommendations

Strengthen anti-avoidance legislation to prevent attempts to reclassify income as capital gain The income tax anti-avoidance legislation might well need to be further strengthened if Capital Gains Tax were to be abolished or if the threshold were raised substantially, in order to prevent the aggressive conversion of income into capital gains. However, we feel that this would be an acceptable price to pay given the greater efficiencies gained.

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Tax Reliefs in context

HM Treasury has conducted few if any evaluations of the economic impact of tax relief to demonstrate whether they are achieving their aims and how effective they are compared to other policy interventions. While tax reliefs have been widely well received, greater clarity and guidance is needed to reduce the cost of compliance associated with such schemes. Feedback from entrepreneurs also indicates that greater awareness of the range of reliefs and schemes is needed.

• Corporation Tax (R&D Tax Relief, Creative Industry Tax Credits, Patent Box, Capital Allowances)

• Income Tax/National Insurance (EMIs, Company Share Option Plans (CSOPs), other advantaged incentive schemes)

• Employers‘ National Insurance (Employers’ NI Relief – Employment Allowance)

Some of the main reliefs for SMEs that relate to each of the taxes are:• Business Rates (Business Rates Relief)

• Capital Gains Tax (Incorporation Relief, Entrepreneurs’ Relief, SEIS/EIS)

• Inheritance Tax (Inheritance Tax Reliefs – Business Property Relief and Agricultural Property Relief)

Incorporation Tax Relief

R&D Tax Relief

Entrepreneurs’ Relief

Employers’ NI Relief

Inheritance Tax Relief

Business Rates Relief

SEIS

EIS

Capital Allowances

EMI schemes

When tax reliefs came into effect60

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

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Awareness of tax reliefs62

*Employee Shareholder Status too small to calculate

Total tax take 2015-201661

£175bn

£150bn

£125bn

£100bn

£75bn

£50bn

£25bn

0Corp Tax Income Tax Employers NIC Business Rates Capital Gains Tax Inheritance Tax

R&D Tax Business Rate Employment Entrepreneurs’Relief Relief Allowance Relief

100%

80%

60%

40%

20%

0

The combined loss to the Exchequer of the tax reliefs available to businesses is £6.46bn. This accounts for only 1.47% of the total forecast tax take of £437.4bn in 2015-2016.

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While there are a number of reliefs related to employees, such as childcare voucher schemes, tax reliefs focused on share or option rights are designed to incentivise and retain key staff. However, with a number of different schemes available, some are less valuable than others.

Employee Shareholder Scheme Launched in 2013, the Employee Shareholder Scheme enables employees to give up certain employment rights (statutory redundancy pay, flexible working rights, unfair dismissal rights, and elements of training and maternity/

paternity rights) in exchange for a minimum £2000 in shares in their company.

To our knowledge, this relief has created very few adherents, and is more of a gesture than a substantial value-add to business (or employees). In March 2015, figures were published showing that HMRC had only agreed 350 share valuations in connection to the scheme, a fraction of the 6000 companies BIS estimated would take up the scheme.64

In practice, some entrepreneurs implemented it and then reinstated their employees’ rights. It failed to achieve the joint ownership behaviours it was intended to encourage. We suggest the relief could safely be abolished as it will almost certainly remain a zombie tax relief.

If EMI could be made easier to self-certify, and to submit annual returns, there is an argument to replace ESS and the Company Share Option Scheme.

Number of employees (000) granted options and value of shares at grant (£m)65

Number of companies Initial share value in year granted

3200

3000

2800

2600

2400

2200

2000

1800

£310m

£300m

£280m

£260m

£240m

£220m

£200m

£180m2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Employee Incentives

Tax Reliefs

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Enterprise Management IncentiveCompanies with assets of £30 million or less can offer share options to their staff under the Enterprise Management Incentive (EMI) scheme, worth up to £250,000 for each employee provided the total value of unexercised options does not exceed £3 million. Employees benefit by only paying National Insurance and Income Tax on the difference between what the employees pay for the shares, and the lower of what they are worth when the option was granted and when the shares are issued. Capital Gains Tax will generally be paid upon their sale, although Entrepreneurs’ Relief will usually apply.

This is a popular scheme with entrepreneurs but they can find themselves faced with penalties if they fall down on the details and the scheme is disqualified. The problem is

there’s a lot of scope for tax avoidance by less principled individuals – in tax law, it’s difficult to differentiate between an investor and an owner-manager. This relief has been abused from a tax avoidance perspective and has as a result become increasingly complex to navigate, even where there is no avoidance motive whatsoever. It is overdue reform and significant simplification.

Incentivise employeesShare ownership encourages loyalty and participation in the company’s success – incentivising employees to work towards the company’s success by sharing financially in that success. But if a company grows to over £30 million assets they can no longer issue EMI share options and have to move to less advantageous alternatives to incentivise key employees. This issue needs to be addressed.

“The EMI scheme has worked well for us but on one criteria we’re over the limits now and have been for some time unfortunately. Because we hold customer deposits we have to include that in our assets so that inflates our balance sheet a lot. That was a real shame as actually I think that we are just the kind of business it was aimed at. We were still small and growing and it was to incentivise and retain good staff; but because of this particular criterion we were excluded. We did write to HMRC but they were immovable. Some

discretion within that would have been useful. We did 5 different releases, and 19 people hold options through that. I’ve definitely seen the benefit and so have our employees because the shares have gone up enormously since we began. So now we have a restricted share scheme, but that’s not as good either for us or for the employees in terms of tax benefit. It’s more complicated to set up and because it’s public domain it has caused problems when people can see what others have got and don’t think it’s fair.”

Jonathan Quin Founder, World First

EMI in practice

worldfirst.com

40

Company Share Option PlanThis scheme gives employees the option to buy up to £30,000 worth of shares at a fixed price. They don’t pay Income Tax or National Insurance contributions on the difference between what they pay for the shares and what they’re actually worth, although employees may have to pay Capital Gains Tax if they sell the shares.

The take-up of these is relatively low and is mainly by listed companies. This is for a wide range of reasons, including the tax attractiveness, as the higher rate of tax is much lower than when these option plans were originally noted; the high administrative costs of the scheme; the financial services legislation aspects; and the perceived chances of significant share price appreciation following the stock market’s poor performance since 1999.

Costs to the Exchequer Employee Shareholder SchemeThe cost of this is minimal as while ESS was aimed at small businesses it turned out to be very expensive to implement and so is prohibitive for smaller businesses – although costs have come down.

Enterprise Management IncentivesThe cost of EMI tax reliefs to the Exchequer is, perhaps surprisingly, very low and was fore-cast by HMRC in December 2015 to be only £70 million in 2015/16.66 This is because of their relatively small take-up in terms of the number of individuals affected. HMRC is concerned about the benefit going to Venture Capital firms as a result of misuse of this scheme.

Numbers of companies granting options to employees67

Companies where employee exercised options68

SIP SAYE EMI CSOP

4000

3000

2000

1000

0

4000

3000

2000

1000

0

08-09 09-10 10-11 11-12 12-13 13-14

08-09 09-10 10-11 11-12 12-13 13-14

SAYE EMI CSOP

Employee Incentives

Tax Reliefs

As these charts demonstrate, there are far fewer exercises than grants in each year as options are only likely to be exercised when they will benefit the employee.

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Simplify all share schemes into one simple online share allocation schemeHaving one simplified scheme, combined with a CGT saving and no income tax liability, should make it easier to self-certify. Employers can opt-in and then self-certify, making it cheaper to implement than the current schemes. However, the annual return is complicated and there is a fear that any error will jeopardise the scheme.

The fiscal cost (or tax expenditure) for the reliefs for company share incentive plans, approved company share option plans and Enterprise Management Incentives (EMI) are around £220m, £70m and £70m per annum respectively.69 All of these reliefs serve a similar underlying purpose to incentivise participation in the capital growth of individuals’ employers through favourable tax treatments. All these reliefs have been abused on occasions for aggressive tax avoidance and have, accordingly, become increasingly complex because of the understandable wish of HMRC to prevent abuse.

We recommend that these reliefs are withdrawn and replaced by a single,

Recommendations

simplified relief for investment by individuals in the company for which they work for in the tax year concerned. The relief should include the following provisions:

• The immediate issue of shares to the employee concerned at their agreed market value

• A flat Capital Gains Tax charge of 10% upon gains realised upon these shares above a fixed threshold of, say, £10,000

Move towards self-certification of share schemesWhile a certain amount of legal advice will still be needed, we should be aiming towards self-certification of share schemes to make it far simpler for founders to set up and implement without the need for unnecessary accountancy services. To support this, accounting and valuation must be made much easier with a website that is much simpler to use than the current HMRC platform. Entrepreneurs will still need advice to avoid pitfalls around the legal element and options to vest.

42

Since being launched for small businesses in 2000, R&D Tax Relief has been a powerful step in the right direction in encouraging innovation and increased productivity in SMEs. However, despite simplification efforts, many businesses are unsure of whether they qualify, or mistakenly believe they do not, so there is more to be done to maximise the impact of this relief.

Overview Research and Development (R&D) tax relief can be claimed against Corporation Tax liabilities for money spent on researching and developing new products or services that are innovative. That is, they must achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of technical or scientific uncertainties. Commercial innovation is not enough to qualify.

The rate of relief under the SME scheme is 30%, meaning that for every £100 in R&D ex-penditure, £230 may be offset against profits in calculating Corporation Tax liabilities. In this case, SME is defined as sub-500 employees, with either an annual turnover of less than EUR 100 million or a balance sheet of less than EUR 86 million. For larger companies the rate of relief is 30%. Alternatively, if a company has no profits and thus no tax liability in that year, the relief can be added to the loss carried forward or converted into tax credits at a rate of 14.5%.70

When introduced in 2000, the relief was novel in giving money back to small companies without profits and therefore a corporation tax liability

to offset against. As such it can be a huge boost to a company’s cash flow, helping businesses survive during periods of intense investment and speeding up job creation and helping business survival (and with that protecting existing jobs too).

In 2015 a new, simplified process was launched – the Advance Assurance. Under this scheme, open to small companies turning over £2 million or less and with less than 50 employees, for the first three accounting periods, HMRC will allow claims without inquiring into them further. While HMRC can claw back this money later if the relief has been claimed for projects that don’t qualify, it’s a big improvement on the previous system, which was off-putting to small businesses, and used to take over a year to process.

However, the relief could be simplified further, as many business owners are still unsure whether or not they qualify – it can be a bit of a lottery. Advice has typically been poor on this relief, and people are unsure what qualifies for Research and Development. There are many who may qualify but aren’t using it because of poor awareness.

Costs to the Exchequer According to HMRC figures published in December 2015, R&D tax relief represents a ‘tax expenditure’ forecast of £1,955 million for 2015/16.71 This includes both the enhanced corporation tax deduction and the alternative (but less generous) direct tax payment to those companies which cannot offset the relief efficiently. Somewhat surprisingly, HMRC estimated that changes to R&D tax credits have administrative costs of only £40m in 2015/16.72

This is a complex area of tax law involving judgments concerning the purpose of the expenditure, so higher compliance costs might have been expected.

Research & Development Tax Relief

Tax Reliefs

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BBOXX is a venture backed company developing solutions to provide affordable, clean energy to off-grid communities in the developing world. “We decided to create a business to address the challenges posed by the unreliable electrical supply,” says co-founder & CTO Christopher Baker-Brian.

“Before that we were doing some charitable projects in electrification in Africa and we saw that the demand was there, the need was there and the ability of people to pay was there, so we felt there was a gap in the market (that was about 6 and a half years).”

With operations in China, Hong Kong, Rwanda and Kenya (with 270 of 320 full time staff based in East Africa), BBOXX’s UK HQ is mainly a cost centre, as Christopher explains: “The benefits we get from being in the UK are low. We need to have good developers, and there are only a few places where you can do this – some European countries, the US. Compared to Europe, the employer/employee taxes are quite low, which is helpful, and 75/80% of our costs are HR. All

of our revenue is generated overseas, so we’re a loss making company in the UK. That means we don’t pay any corporation tax here.”

Awareness issue Christopher has made up for a lack of awareness of tax reliefs in the early days of the business by claiming R&D Tax Credits. “Our accountant told us about the scheme, and we used a company to submit the grant. If we hadn’t heard about it from our accountant, would we have heard about it elsewhere? Maybe, I’m not sure. You don’t hear a lot about it.”

“We’ve benefited quite a lot from R&D tax credits to the tune of about £80,000 per year for the past 3 years. It’s a nice extra to have, it reinforces the fact that the UK is a good place to do this kind of work. I wouldn’t say it drastically changes any of our decisions but it’s good to have the money to put back in the business. When you talk to investors it’s really nice to be able to say we can benefit from this and it just makes the decision about where to develop a lot easier.”

Christopher Baker-Brian BBOXX

Impact of R&D Tax Credits

The government’s task is to ensure the UK gains more than it loses from Brexit.

Simplifying the taxation system to encourage entrepreneurs to invest more in R&D

for longer, would be a good place to start.

Tony Langham, Non-Executive Chairman, Unbiased.co.uk73 “

“

bboxx.co.uk

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After Charlie Mowat left university, his first job was in a management consultancy. But, he says, “I always knew that I was going to start my own business. My mum and dad had businesses and I grew up in that kind of environment.”

So in 2003 he started up The Clean Space, a cleaning company that looks after and respects its employees. Today, the business has grown into a thriving £4.5 million turnover company driven by its core values of respect, reliability, honesty, happiness and communication.

In the very early days though, tax was the last thing on his mind. “I was just getting on my feet, I literally started from scratch, I was knocking on doors to get clients, going in at night to do the cleaning and hoping people wouldn’t spot me so they didn’t know the business was smaller than they thought, and bootstrapped it from there. I remember not understanding VAT, I knew businesses had to pay Corporation Tax and that Income Tax was important. But it wasn’t something I was really thinking about.”

One relief that has come to have a significant impact on Charlie’s business success is the R&D tax credits system. “In another business I’m involved in, we have built a custom system for running the operation of the business. It’s a mystery shopping business so we’ve built a

system by which mystery shoppers can receive a report, then go into a shop and fill it in, submit photos, and so forth. We’ve spent about £300k so far on the technology.”

“We just stumbled across R&D tax credits – I was at a conference and there was a guy who was pitching as an accountant to see if anyone was interested in help claiming for R&D. We found that we qualified, so we submitted an application and we went from there. It’s had a massive impact in terms of allowing us to invest more in the system but the government should be advertising it better. We found out in time to make the most of it for this project, but we did miss out on previous projects which we could have claimed on, and which we spent around £200 thousand on developing. Entrepreneurs just don’t know enough about it.”

While The Clean Space, which turns over £5.5m, has not yet used R&D Tax Credits, Serve Legal, with £2.5m in sales, has invested £500k in technology; all of which will qualify for relief in the current tax year.

Because of his experience with Tax Credits, technology development has become a higher priority for Charlie. “Now we’re looking at investing in technology in the near future in The Clean Space as well. If I didn’t have my experience with R&D Tax Credits I potentially still wouldn’t be aware of them, and that would most probably result in us not investing as much in technology.”

Charlie Mowat The Clean Space

HMRC promotion of tax credits

Research & Development Tax Relief

Tax Reliefs

thecleanspace.com

45

Number of claims received for R&D tax credits by scheme, 2000-01 to 2013-1474

SME Large company Large company sub-contractor RDEC

25,000

20,000

15,000

10,000

5,000

000-01 01-02 02-03 03-04 04-05 05-06 06-07 08-09 09-10 10-11 11-12 12-13 13-14

Since the R&D tax credit schemes were launched in 2000-01 up until 2013-14, almost 120,000 claims had been made and more than £11.4 billion in tax relief claimed 75

The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, making up a total of 76% of claims and 81% of the total amount claimed for 2013-14).76

September 2015: HMRC

R&D claims and the amount claimed are mainly concentrated among companies with a registered office in London, the South East or the East of England (46% of all claims and 64% of the total amount claimed) 77

Research & Development Tax Credits statistics

£11.4b

76%

46

Increase awareness of R&D Tax CreditsThe take up of a relief takes time as advisers become aware of it and learn more about how best to deploy it. We recommend that HMRC creates a one-page document listing all the tax reliefs that are available to businesses, and that this should be included in all letters that they send to businesses. The message needs to be repeated to raise awareness. For some initiatives, Institute of Director surveys have shown that less than 10% of businesses have heard of them, with awareness of most reliefs and initiatives generally low (i.e. generally under 30% of business owners and directors have heard of the various different initiatives that are available). The key message is to encourage applications by making the application criteria well-understood, so businesses can be confident they qualify.

In its most recent survey, the IoD found that 60% of its members have heard of R&D Tax Relief and 28% have used it. However, cost optimisation consultancy Leyton estimates that only 30% of UK SMEs who would be eligible for funding are aware of reliefs.

Introduce a new markets tax relief to reduce the costs of entering a new marketEntrepreneurial businesses see navigating the complexities of international legislation and regulation as their major challenge when it comes to expanding in global markets, with local cultures and languages a secondary concern. In many cases the biggest hurdle is in the initial work involved in entering a new market: researching, finding distribution networks, establishing logistics, etc.

Recommendations

Designing tax incentives for exporters could help overcome some of these obstacles. We therefore recommend that the Government designs and implements a new tax incentive to boost export performance - a new markets tax relief to reduce the costs of entering a new market. We recommend the development of a tax credit, like the R&D tax credit, for both the initial set up costs of exporting to any market as well as turnover generated in respect of certain jurisdictions.

A number of the UK’s international competitors help demystifying exporting by providing tax credits to companies who explore and develop new sales territories. For example, the US state of Michigan’s State Trade & Export Promotion (STEP) programme helped 130 companies connect with 62 new markets, increasing the State’s exports by $21million in the second half of 2012.78

The UK government does not provide similar support. While first-time exporters can access the Tradeshow Access Programme (TAP), for example, this is not the case for those seeking to expand their global presence. Moreover, grant funding is not effective at securing additional spend for those already convinced by the benefits of exporting. This requires an underwriting of risk, which a credit can provide.

Increase promotion of R&D tax credits from advisers and accountantsWe call upon all organisations like ICAEW, ACCA and Unbiased to do more to promote R&D tax credits via accountants and financial advisers and lobby on their behalf for better online guidance from HMRC.

Business Rates Relief

Tax Reliefs

Research & Development Tax Relief

Tax Reliefs

47

Business Rates Relief

Tax Reliefs

Business Rates Relief

Tax Reliefs

While business rates relief is currently available for micro businesses, the relief rapidly falls away as these businesses scale, significantly disincentivising growth and expansion by SMEs.

OverviewFor businesses with just one commercial property Business Rate Relief is available at a rate of 100% for properties with a rateable value of £6,000 or less reducing to zero relief

on properties with a rateable value of £12,000 or more. For businesses with multiple properties with a rateable value of under £2,600, relief is also available.79 If a business property has a rateable value of up to £18,000 (£25,500 in Greater London), business rates are calculated at the Small Business Rates multiplier, rather than the standard one (a small difference of around 1.5%).80

An area of concern to many SMEs is the rapid pace at which the business rates reliefs for such businesses are withdrawn. This often creates an impediment to business expansion, such as opening a new shop.

Business Rates tax take81

Treasury total take

£30bn

£25bn

£20bn

£15bn

£10bn

£5bn

02007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

New Business Rates, based on rateable values from 2015, will come into force in April 2017 and are expected to hit retail businesses in London and the South East hardest. While parts of London will see rate increases ranging from 102% to 415%, Colliers International estimates that 77% of retail centres across Britain will see a decrease in Business Rates.

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“Business rates are the biggest lower-paid job-killer in Britain today. Running young businesses requires low fixed overheads. Where costs are variable, not fixed, they can be brought down to match the level of revenue and minimise early or seasonal losses which in young businesses are almost inevitable, and often fatal. But business rates are a high fixed overhead. They have nothing to do with sales revenue, or employment, or profits. Because the tax relates to workspace, it applies at a far higher marginal rate on lower paid workers than it does on higher paid ones.

This anti-business policy kills young businesses stone dead, but there is a solution: Low Paid Worker Relief from Business Rates. Businesses collect and pay employees’ taxes through the PAYE scheme. Young businesses should be able to reclaim their business rates with a PAYE tax receipt for a low wage worker.

The policy statement denies relief to property asset holding businesses, and to established businesses, and to businesses which employ only high wage earners. It targets relief at young organisations which have created new jobs on lower wages. This is the sector of the economy which currently shoulders a disproportionate and punitive share of business rates.

Just as importantly its implementation is very easy. Business rates are collected and paid in the normal way, and later redeemed by

submitting a simple claim composed of the employer’s NI account number and the relevant employee’s NI number. The place and period of employment, the rate of pay, and the amount of tax already paid via PAYE, are all already on the employee’s NI record held by HMRC.

Like any good relief this should reduce on a sliding scale, so that a mature business pays its taxes on the same scale as other mature businesses and so that there is no sudden cliff, but a gradual stepping-up over time to the normal tax rate.

Young businesses are defined as those which have not yet made taxable profits in five tax years. Qualifying lower paid workers are defined as workers whose PAYE income tax records show that their income is below 80% of the national average wage. Where a young business employs qualifying lower paid workers they may claim, and HMRC will redeem to the business, paid PAYE contributions as follows, up to but not exceeding the net total of business rates paid on the building:

Currently, there are several forms of business rate relief, but they offer lower tax bills to a mixture of charity, religious, and amateur sports premises, and one to very small businesses which serves primarily to dis-incentivise growth. These existing reliefs incentivise property speculators to house charity shops, which is perhaps why there are so many of them doing so little business.”

Paul Tustain Founder & CEO, BullionVault

Low paid worker relief from Business Rates

Business Rates Relief

Tax Reliefs

bullionvault.com

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Taking on a bakery business after a career in the leisure industry might not seem a natural progression, but when Anthony Prior took on Bagelman in 2011 there were some similarities. “My background as a music promoter taught me how to keep a lot of people happy and coming back for more,” he explains. “Moving from an industry where the working day finished at 4am to one with more sociable hours was definitely a motivator though.”

Bagelman was 15 years old when Anthony too it over and he has doubled revenues and employees in the last two years, to £2.2m and 52 respectively. “It’s all been organic growth and quite nerve-racking at times but I’m still enjoying it. The next two year plan is to double revenues without having to double headcount as we are a bit leaner.”

Business rates is a big area of cost for a retail business where 80% of sales is from the high street. “We have to factor the cost of Business Rates into any growth plan from day one. We’re too big to benefit from Business Rates Relief but not a big business. We could be creating more jobs more quickly but the risk is too great - and one of the biggest risk factors is having no neighbours in town centres.

“Local authorities have a big opportunity to be a bit more imaginative with Business Rates

to encourage more diverse businesses to fill the growing number of vacant spaces in town centres which have been decimated by rates that don’t reflect changes in the local economy. You might get a good position on the high street near a train station but you might not have any neighbours. A buoyant and thriving high street creates confidence and everyone benefits from that success.”

Some flexibility and creativity around reliefs and leases could be answer, as Anthony explains: “Local Authorities can introduce a relief for the first 12 to 18 months for new, interesting businesses signing up to longer term leases. This could be linked to job creation, with reliefs tiered to the employment of 5, 10 or 50 new people - so the exchequer receives the same if not more tax take from PAYE and NI contributions.”

Tax collector costsVAT has always been a niggle. “VAT means we are essentially unpaid tax collectors for HMRC,” he explains. “We have to bear the cost of processing VAT payments and reporting on it. That cost should be recognised, perhaps with half or one per cent paid back on every payment. This would recognise the contribution made by business to the economy.”

Anthony Prior CEO, Bagelman

Increase Business Rates Relief to revitalise town centres

bagelman.co.uk

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We recommend that Business Rates Relief for SMEs is significantly improved and the taper is made much more gradual so that full relief is available for an SME’s business premises up to £25,000 and the relief is tapered up to £50,000. To justify the increase in threshold, remove the smaller business multiplier as it has so little impact.

Introduce new paid worker relief from Business Rates so that early stage businesses can reclaim their Business Rates with a PAYE tax receipt for a low wage worker.This will target relief at young organisations which have created new jobs on lower wages which shoulder a disproportionate and positive share of business rates.

Recommendations

Business Rates Relief

Tax Reliefs

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Capital Allowances can be used to reduce tax liabilities against expenditure on assets that are kept and used within a business, such as machinery, equipment, and business vehicles. These are, from one perspective, an approach to control the tax deduction for depreciation (i.e. an anti-avoidance measure) or, from another perspective, a way to boost capital investment (i.e. a tax expenditure). In reality it’s a bit of both.

OverviewWhilst some anti-business lobbyists and campaigners describe capital allowances as a ‘fiscal expenditure’, this is far from the case. Assuming that it is the intention of parliament to tax the profits arising in a business to corporation tax (for companies) or to income tax (for sole proprietors, partners and limited liability partnership members), the fact that an accounting profit ought to recognise the depreciation of a fixed asset as a cost is clear. There is, however, no right to deduct the depreciation charge from taxable profits. If capital allowances were not available, the profits assessed to tax would almost invariably be much higher than the accounting

(or economic) profit. In fact, capital allowances are not available for all as-sets (e.g. most of the cost of retail, commercial or industrial buildings) and on those qualifying for capital allowances are regulated so that they can only, for most assets, be depreciated at a rate of 18% per annum. The rate allowed has been progressively reduced by governments of all political complexions from 100% in 1983/84 to 18% since 2012/13 for qualifying capital expenditure upon which the Annual Investment Allowance (‘AIA’) is not available.82

We consider that a capital allowances rate of 18% is too low to properly recognise the economic depreciation of many assets which qualify for capital allowances. Although there are special provisions to treat assets which are considered to be ‘fast-depreciating assets’ separately, these rules are complex, cumbersome and add to compliance costs so we recommend that this option is withdrawn but that the capital allowances rate is increased from 18% to the 25% rate which applied from 1978/79 until 1996/97. In an ever changing and faster-moving economy, the economic life of most capital assets are becoming shorter, not longer and the capital allowances rate should be responsive to this. It should mirror the rate of depreciation for SMEs.

Capital Allowances

Tax Reliefs

Capital Allowances

Tax Reliefs

52

Reinstate the Annual Investment AllowanceIt was disappointing that the previous Chancellor reduced the AIA cap from £500,000 to £200,000 for expenditure incurred from 1st January 2016.83 We recommend that the cap upon this important relief, the only tax relief against profits focused upon the UK’s key mid-sized corporate sector, is immediately increased to £1million per annum. Many economists

Recommendations

consider that UK businesses - especially SMEs - score poorly from a productivity perspective in comparison to their key global competitors. One way to address this would be to promote investment in new plant and machinery assets to improve our productive output per employee. Another way is to allow small and mid-size firms to opt to set off at depreciation rates assuming these are sensible and not artificially short – an audit will ensure it is correct in those that need one.

Capital Allowances

Tax Reliefs

Capital Allowances

Tax Reliefs

53

Entrepreneurs’ Relief

Tax Reliefs

Entrepreneurs’ Relief offers relief on Capital Gains Tax incurred when an entrepreneur sells a business they’ve started and grown, rewarding the risks that they’ve taken in order to achieve the end result.

OverviewEntrepreneur’s Relief replaced the older Business Assets Taper Relief, which was abolished in 2008.

Business Asset Taper Relief gave a maximum 75% deduction on Capital Gains liabilities on business assets sold by individuals, which had been held for at least 2 years prior to sale. At the time the relief was abolished the top rate of CGT was the same as the top rate of Income Tax at 40% so it meant an effective rate of 10% on any qualifying asset sold with no ceiling on the amount.

Entrepreneurs Relief simply reduces the rate of Capital Gains Tax paid on the sale of a business to a fixed rate of 10%. Very significantly though there is a lifetime limit on the amount of lifetime gains that can qualify for this relief for each individual of £10 million (originally £1 million when launched in 2008).

This relief rewards the risk and contribution made by entrepreneurs in scaling a business and very often sacrificing financial reward in an endeavour to grow their business faster. Many entrepreneurs do not take a high salary from their business, delaying taking larger salaries or dividends in order to reinvest profits in the business (creating more jobs and increasing the revenue from other related business taxes) in an

attempt to build a higher capital value in their business. So the reward of Entrepreneurs’ Relief is a really useful incentive encouraging growth.

One consequence of replacing Taper Relief with Entrepreneurs’ Relief is that for the very small number of successful entrepreneurs who scale their business to over £10m in value there is a tax incentive to exit early as there is a substantial increase in CGT over £10m.

In addition, the capped lifetime relief of £10m acts as a disincentive to the very few people capable of scaling a business from doing so again. We want to encourage not dissuade these entrepreneurs to start again. Investing in their own new ventures or continuing to scale beyond £10m creates further job creation and tax receipts more generally.

The extension of Entrepreneurs’ Relief in 2016 by introducing a new investors relief now means that long term investors (3 years minimum) will also be taxed at a rate of 10% on the disposals of shares (subscribed for on or after 17th March 2016) in unlisted trading companies, subject to a maximum lifetime limit of £10m of gains. It remains to be seen how the new relief will impact on Enterprise Investment Schemes (EIS) where gains are fully tax exempt and investors can qualify for Income Tax relief at 30% of the original investment.

Costs to the Exchequer In its review of ten tax reliefs in 2014, the National Audit Office found that Entrepreneurs’ Relief cost the UK exchequer some £2.9 billion in 2013/14 - three times higher than budgeted and a 500% increase over the cost of the relief when first introduced. The cost of tax loss was estimated by HMRC in December 2015 to be £3 billion for Entrepreneurs’ Relief.

54

Entrepreneurs’ Relief

Tax Reliefs

This system doesn’t encourage those adept at scaling great businesses to continue beyond

a valuation of £10million, when Entrepreneurs’ Relief no longer applies. It encourages people to sell up.

Incentivise them to carry on growing and creating jobs.

Toby Baxendale, Founder & CEO, Seafood Holdings Ltd 84 “

“

Performance marketing agency Periscopix was co-founded by Simon Norris and Marc Warren in 2004 and was acquired by CRM specialist Merkle in 2015. Simon Norris left his job in 2004 not knowing what to do next, but he always had a strong desire to start his own business. “I saw an opportunity in online advertising at that time and I bumped into someone who was involved in Google at the very early stages. So a number of factors came together but fundamentally it was something that I’d always wanted to do,” he recalls. He knew far less about the various tax reliefs available however. “I knew about the fundamentals of income tax, rates, corporation tax and CGT, but in terms of reliefs, we were clueless!”

While various reliefs have had a significant impact on Periscopix in recent years, Entrepreneurs’ Relief has become more highly valued over time; but, like many such schemes, it should be promoted more widely to new founders. “More could be made of promoting

ER to younger entrepreneurs, and showing just how good the state is at giving incentives to entrepreneurs. If I were starting again it would be part of that decision.”

Address complexityDespite this, there are some areas of complexity still to address – necessitating advice to gain the most benefit. “I think the way ER is applied in earn outs could be made simpler. We have to pay all the tax due on the full amount of the deal in the current tax year, even though we won’t have received all the payments. It’s hard to get the relief applied to the full amount. I’ve spoken to people who’ve only managed to get it applied to the first payment, for example. We’ve had very good advice, they told us we had to be really careful, they did our tax returns. There’s careful negotiations with HMRC and we’ve paid for good advisors. If we’d had a smaller deal and couldn’t afford that, it might be significantly more difficult for people to get that.”

Simon Norris Founder, Periscopix

Simplify Entrepreneurs’ Relief

periscopix.co.uk

55

“ER is definitely a positive thing from what I understand of it,” says The Clean Space founder Charlie Mowat.“Having spoken to other entrepreneurs, it’s a big motivating factor. I became aware of it when I started thinking about what the exit value might be like. So at the start it wasn’t a factor, but if I were starting a business now, and selling it, I would definitely be positively influenced to continue to be an entrepreneur by that relief. It would be a significant change that might influence me to go and do something else.”

However, whilst he’s very positive about Entrepreneurs’ Relief, the structure of the relief can cause problems as Charlie has discovered. “At The Clean Space we’ve focused on acquiring smaller companies as a growth

strategy. Those are typically owner managed businesses, somewhere around the £500,000 to £1 million turnover mark.”

Businesses can be bought either through a share sale, or through what’s known as a goodwill and contracts sale. “For us, the value is mainly in the goodwill of the contracts, so it’s better for us to acquire the goodwill and assets of the business as it’s legally simpler, involves less risk, and is quicker. The problem is, the vendor can’t get Entrepreneurs’ Relief on that cash, so if they take it all out of the business at once they get hit with 40% tax or more. It’s a hurdle for us, and something I’m grappling with at the moment.

I know this is stifling enterprise and it’s something the government really ought to look at.”

Charlie Mowat Founder, The Clean Space

Entrepreneurs’ Relief in practice: Goodwill & Assets

Number of UK company exits (2006 - 2015)85

Number of deals Aggregate deal value (£m)

12,000

10,000

8,000

6,000

4,000

2,000

0

300k

250k

200k

150k

100k

50k

02006 2007 2008 2009 2010 2011 2012 2013 2014 2015

thecleanspace.com

56

Abolish Entrepreneurs’ Relief if Capital Gains Tax is cut to zero The majority of entrepreneurs interviewed thought that Entrepreneurs’ Relief acted as an incentive to roll over profits to build capital value, not enough founders start again after selling their business. If they pay more tax next time it’s a disincentive

Recommendations

to start again. The recent extension, offering Entrepreneurs’ Relief to long term investors was relatively inexpensive for HMRC. Since they have established that broadening it out doesn’t cost a great deal, could they go a step further and incentivise entrepreneurs to start again by investing in their new ventures?

Entrepreneurs’ Relief

Tax Reliefs

Post-Brexit Britain will require some really bold and innovative thinking on tax policy towards

entrepreneurs if the country is to prosper. This report offers a welcome blueprint to that end.

Tim Hames, Director General, BVCA86 “

“

There is an opportunity, at this time of negotiations to leave the EU, to loosen the current restrictions

on EIS imposed under State Aid rules. UKBAA would fully endorse this approach, as this would ensure

that the EIS and SEIS schemes not only support early stage businesses but also enable investors to back

entrepreneurs right through their growth cycle to achieve successful scale-up.

Jenny Tooth OBE, Chief Executive, UK Business Angels Association “

“

57

SEIS & EIS

Tax Reliefs

OverviewSEIS or EIS enable investors to offset part of the cost of their investment in a small or medium-sized business against their income tax, and qualify the investor for exemption from Capital Gains Tax on the sale of the shares. Relief on EIS is on 30% of the cost of the shares, up to a maximum investment of £1 million in each tax year, and the shares must be held for a minimum of three years or the relief is withdrawn. If sold at a loss, the loss can be set

against the income of the investor to reduce tax due on their income in the year the shares are sold. On SEIS, the relief is 50% of the cost of the shares, up to a maximum annual investment of £100,000. Broadly similar benefits and conditions apply to SEIS as EIS.

Only investments in qualifying companies are able to gain these reliefs. To gain from SEIS, amongst the key conditions are that the trade must be less than two years old, and the company must have fewer than 25 full time

Amounts of funds raised through EIS, 1993-94 to 2013-1487

£1,800m

£1,600m

£1,400m

£1,200m

£1,000m

£800m

£600m

£400m

£200m

0

1993

-94

1997

-98

1995

-96

2000

-01

2003

-04

2007

-08

2011-

12

1994

-95

1998

-99

2002

-03

2006

-07

2010

-11

1996

-97

2001

-02

2004

-05

2008

-09

2012

-13

2005

-06

2009

-10

2013

-14

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), are aimed respectively at boosting investment in start-up and small or medium-sized businesses by providing tax relief to investors. While take up of these schemes

has grown, the tension between the tax incentives and investor protection legislation needs to be improved and the compliance processes simplified and democratised, to allow friends and family to invest in the business, for example.

Am

ount

of i

nves

tmen

t (m

)

58

equivalent employees, and less than £200,000 worth of assets at the time of issuing shares. They may raise a total of £150,000 under the SEIS scheme. For EIS, companies must generally have fewer than 250 full time equivalent employees, less than £15 million in assets, and be less than seven years old when first raising funds. They may raise up to a total of £5 million in investment under EIS and other risk finance schemes annually.

Recent reports that the number of start-ups applying for the Seed Enterprise Investment Scheme have shot up by 73% is great news, suggesting that the major push to raise awareness about this scheme has paid off.88 SEIS has transformed the funding landscape and, due to the benefits of the scheme, investors are increasingly wanting to invest in SEIS registered companies.

Unfortunately, a simple oversight in the set-up of the scheme could have a number of unintended

The growth of EIS• Almost all regions of the UK have

increased in the amount of EIS funds raised from 2010 to 2013, with the South East, East Midlands, Northern Ireland and the North West increasing over 100%89

• 54% of products open for investment today are focused on growth as opposed to capital preservation90

• General enterprise, technology & media are the three sectors seeking the most fundraising91

consequences, which might well be damaging to SEIS registered start-ups. You can currently raise up to £150,000 through SEIS, an amount which has created a quandary for many high-growth businesses. Any founder knows that raising finance is a time-consuming and lengthy process; particularly difficult during the very volatile period of early-stage growth where £150,000 is very often not enough and needs to be augmented with investment under EIS at the same time.

Incentivise the right behavioursAnother consequence of the scheme is that it may be creating the wrong behaviours at the other end of the enterprise spectrum, with too many start-ups seeking equity that’s not needed. When raising less than £100,000 in most cases businesses should be finding other forms of finance – the last thing a slower growth business should saddle itself with is investors exerting pressure for impossible growth.

SEIS & EIS

Tax Reliefs

Awareness of Tax Efficient Investment Schemes92

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0SEIS EIS VCT

% o

f res

pond

ents

who

hav

e no

t he

ard

of o

r use

d sc

hem

e

59

Simon Sole founded political risk forecasting firm Exclusive Analysis and it sold it to IHS in 2012. He has since founded Bandoola Productions, with film projects including Containment which was released in 2015. Simon invests in scalable technology startups and mentors a range of entrepreneurs. Investments include Deepcrawl, Sandpit Labs, Powermeeter, and Sodash.

“Entrepreneurs take absurd, unimaginable risks in starting a business,” says Simon. “The tax system should acknowledge this and it does with Entrepreneur’s Relief and schemes like EIS and SEIS. Having exited myself, I would be more encouraged to start another business if ER was extended above £10m rather than being able to use EIS or SEIS to invest my own money. It’s the exit that matters.”

While Simon is clearly an advocate of EIS, he believes HMRC could do more to encourage greater support of startups. “EIS is a great scheme, but I’m concerned about the risks of compliance. As an investor, I could be penalised for getting more involved with a company that needs more hands on help; under the present rules any paid consulting or directorship work might be ruled a benefit in kind from the company and thereby disallow the EIS; it’s a constraint to getting stuck in. HMRC could be more transparent with guidelines so investee businesses benefit from expertise as well as growth capital.”

The elephant in the room with tax efficient investment schemes is that it can be abused, with money going into businesses that don’t contribute to infrastructure, economic growth and most specifically job creation. “The growing popularity of EIS and SEIS has, partly, led to an excess of cash for small businesses which has not only distorted the market but in some cases enriched entrepreneurs who haven’t contributed to the economy through job creation.

Measure impact of EIS“The Govt has a great resource in the National Insurance register to be able to measure the impact of EIS and SEIS through job creation. They don’t need entrepreneurs to give them this information as they have it already. They could use this data to help them decide which companies should get support and maybe even lending via Small Loan Guarantee schemes. The point is that while the banks are puzzling over who to lend to, the government has an excellent data set in the NI payment record of exactly who has really contributed jobs to the economy and who has not. In both Canada and Australia I think starter businesses by eg immigrants have to show they are employing a number or people after a certain amount of time to get continued support. HMRC, despite apparently being the initiator of more bank-ruptcies than anyone else, are in fact supportive of small businesses with cash flow problems.”

Simon Sole Founder & CEO, Bandoola Productions

More clarity on EIS and its economic impact

bandoola.co.uk

60

Amount of investment received by new companies through SEIS and by companies who received investment under SEIS previously, for 2012-13 and 2013-1494

Companies raising funds for the first time

Companies raising funds through subsequent rounds

160m

140m

120m

100m

80m

60m

40m

20m

0m2012-2013 2013-2014

Number of companies raising funds under EIS, 1993-94 to 2013-1493

3,500

3,000

2,500

2,000

1,500

1,000

500

0

1993

-94

1997

-98

1995

-96

2000

-01

2003

-04

2007

-08

2011-

12

1994

-95

1998

-99

2002

-03

2006

-07

2010

-11

1996

-97

2001

-02

2004

-05

2008

-09

2012

-13

2005

-06

2009

-10

2013

-14

The government provides a range

of support to encourage investment. Without access

to the finance they need to develop their vision, companies with great ideas would struggle

to fulfil their potential, and Britain would

lose out.

“

“

Rt Hon David Gauke MP, Chief Secretary to the Treasury95

SEIS & EIS

Tax Reliefs

Costs to the ExchequerHMRC’s TIINs generally note the cost of HMRC’s administration costs for EIS & SEIS to be ‘negligible’ which probably means less than £5m per annum. EIS costs the Exchequer

<£300m pa and SEIS <£50m so HMRC’s negligible administration costs are hardly surprising. The cost of tax loss was estimated by HMRC in December 2015 to be £65 million for the Enterprise Investment Schemes Relief.

Num

ber o

f inv

estm

ents

61

It seems odd that I was able to enjoy the benefits of EIS but the co-founders in the business wouldn’t benefit from the same

advantages on any cash they invested personally.

David Grant, Founder, Counters Creek96 “

“

After acquiring the Buyagift.co.uk domain back in 1999, Dan Mountain along with some key early employees have developed the company into an award-winning experiential gift business that now employs over 130 people. “Our initial idea came 17 years ago,” Dan explains, “and if I could go back and give my younger self some advice it would be to better understand my strengths, recruit for my weaknesses and be clear on the core purpose of the business from the outset. We ‘deliver happiness’ to customers, staff and suppliers – which has led to happy shareholders.”

Dan has since become an investor himself, backing five businesses using EIS over the last four years. “I’ve learned that you must have a long term view; it can take five to 10 years for a sale event and startups need the continued support of their first stage investors, particularly during their second round. It inspires confidence. These schemes are tax efficient but it is still a high risk investment; without EIS or SEIS far fewer startups would be able to get the growth capital they need.”

A big fan of SEIS, Dan believes it has been vital to small business growth but more potential could be unlocked by raising the threshold. “The Seed Enterprise Investment Scheme is fantastic but a company can only raise £150k under this scheme and an individual can only invest up to £100k per year. Raising both would certainly help drive the growth of new businesses. I would have personally invested in more if the threshold was doubled. Startups spend that money very quickly, so £300k is a more sensible figure to cover the costs and salaries during the first 18 months. It gives everyone security to plan and commit.”

Dan is one of a growing number of successful founders who have become angel investors to nurture and sustain their entrepreneurial spirit; exactly the kind of people the government should be incentivising to invest in their own new businesses. “I would be more likely to have another go if I could invest under SEIS; and if the founder has personally invested in their own new business it gives other investors more confidence.”

Dan Mountain Co-founder, Buyagift Plc

Increase the limits on SEIS levels

buyagift.co.uk

62

Double the threshold for fundraising under SEIS to £300,000, and implement a lower cap of £100,000 This would enable fast growth companies to get the funding levels they need for significant growth, whilst at the other end protecting both entrepreneurs and investors from investment that one or both parties will live to regret.

Simplify legislation to simplify the process Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) have been remarkably successful in incentivising investment in smaller companies. However, the growing regulatory burden is weighing heavier each year. The seven-year rule – which means companies can only raise their first investment within seven years of making their first commercial sale, or ten years for knowledge-intensive companies – should be scrapped. Too many businesses don’t follow a textbook model from start-up to growth, with many developing later. The seven-year rule discriminates against them, putting them at significant disadvantage compared to younger companies and skewing market incentives.

Families and entrepreneurs should also qualify for the reliefWe should be incentivising self-investment as well as external investment. Entrepreneurs cannot benefit from SEIS/EIS if they invest in their own business and

Recommendations

current policy encourages entrepreneurs who have already exited their business to invest in others’ businesses rather than starting again. It is key that entrepreneurs should get the same benefits when they are investing in themselves, to incentivise not just investment but the utilisation of their skills and experience in new companies. If they are prepared to put their own cash into their own business they should receive the same relief as any other investor.

Parents and close family members of entrepreneurs are currently blocked from investing in those firms to reduce money laundering and fraud opportunities. With the right checks and balances, however, reforming these rules could help to unleash a new wave of EIS and SEIS. There are legitimate reasons for this, namely to business investment. For instance, steps will need to be taken to ensure companies being invested in are legitimate new enterprises, not just a new branch, store or version of an existing family business.

Since two-thirds of first-time house purchases are facilitated by the ‘Bank of Mum and Dad’, according to the National Property Federation, it makes sense to extend the possibility of parents using SEIS to fund their child’s business, rather than a house. Not only would this help nudge Britain away from a debt-and-asset obsessed country to an enterprising, equity-based one, but this also seems logical at a time when more and more students are leaving school and university with ideas for a new business rather than dreams of home ownership.

SEIS & EIS

Tax Reliefs

63

The vote to leave the European Union will be a catalyst for great change across our economy. Few areas are in as urgent need of reform as our excessively complex tax code, which does not sufficiently distinguish between SMEs and multinationals or recognise the impact of small businesses on job creation.

The tax code now stretches to more than 20,000 pages and yet – despite its thoroughness – it is simply not fit for purpose for British businesses, in particular those looking to scale-up. While the UK is a great place to start a business, with more than half a million founded last year, the number that succeed in growing significantly is still relatively small – and our tax code represents a significant challenge to our most ambitious companies.

Indeed, if the tax code is to adapt to a 21st century economy, its reforms must be as

entrepreneurial and bold as our fast-growth companies. The 2017 Budget must be far-reaching, practical and radical, maximising the benefits of those reliefs for businesses that are creating employment and revitalising local economies.

Across the tax code – from Corporation Tax, National Insurance to Business Rates – the system is out of kilter with the modern economy in ways that are hindering growth and reducing trust, whether through unnecessary complexity or perceived unfairness.

To enable domestic growth and global ambition, we must modernise or replace business rates, simplify the process of compliance and change the structure of employment taxes. Anything less would be a missed opportunity as we rewrite our role in the world.

Conclusion & Acknowledgements

Andrew Noble, Founder, Occupational Health Partners

Anthony Prior, CEO, Bagelman

Charlie Mowat, Founder, The Clean Space

Chris Ash, Founder, Ash Gaming

Christopher Baker-Brian, Founder, BBOXX

Dan Mountain, Co-founder, Buyagift Plc

David Grant, Founder, Counters Creek

Diane Young, Co-founder, The Drum

Dominic List, Founder, Comtact

Ian Meiers, Founder, Cad & The Dandy

Jenny Tooth OBE, Chief Executive, UK Business

Angels Association

Jonathan Quin, Founder, World First

Katie Howell, Founder, Immediate Future

Mark McCormack, Co-founder, Talking Tables

Paul Tustain, Founder & CEO, BullionVault

Simon Norris, Founder, Periscopix

Simon Sole, Founder & CEO, Bandoola Productions

Tim Hames, Director General, BVCA

Toby Baxendale, Founder & CEO, Seafood Holdings Ltd

Tony Langham, Non-Executive Chairman, Unbiased

Thank you to all those who have contributed to this report:

64

About the co-authors

At Prelude we want to make Britain the most enterprising nation in the world, because we believe that where entrepreneurship thrives so too does inspiration, innovation and employment which ultimately will make Great Britain even greater.

preludegroup.co.uk

Prelude is home to:• The Supper Club: Membership club

exclusively for fast growth founders and CEOs

• The Directors Club: Development for directors of entrepreneurial businesses

• Speaker Boutique: Insights on scaling your business from entrepreneurs who have scaled

• Growth Programmes: Structured learning for entrepreneurs and their teams

We believe the best way to achieve this is by helping entrepreneurs – often the ‘unsung heroes’ of our economy – and their teams to be more successful. We support them through action, not words. We run events and deliver programmes that facilitate the sharing of insight and knowledge that will ultimately support long term growth in individual businesses and collectively across the economy as a whole.

Prelude Group

65

iod.com

About the co-authors

Institute of Directors

At the Institute of Directors, we have been supporting businesses and the people who run them since 1903. As the UK’s longest running organisation for professional leaders, we are dedicated to supporting our members, encouraging entrepreneurial activity and promoting responsible business practice for the benefit of the business community and society as a whole.

Our philosophy is to support, represent and set standards for directorsWe are your representative and voice in business, no matter what your company size. We support our 34,500 members through 48 regional branches across the UK, allowing us to be influential at a local level, as well as nationally. Our members are some of the most skilled and prominent leaders in the UK, from start-up entrepreneurs to directors in the public sector and CEOs of multinational organisations.

We represent your point of viewAs an independent association of business leaders, our objective is to make sure your views are taken into account when the government is reviewing policy, legislation or seeking the views of the wider business community.

We promote professionalism in the boardroomHigh standards of excellence and professionalism in the boardroom are essential for businesses to succeed. We have been supporting leaders in their professional development for many years and our highly regarded programmes provide creative and flexible training opportunities, including our exclusive and industry-recognised qualification, Chartered Director.

66

About the co-authors

Grant Thornton UK LLP is a leading business and financial adviser. We have chosen to set our reputation alongside a bold purpose – by unlocking the potential for growth in our people, clients and our communities, we believe we can help shape a vibrant economy where businesses and people can flourish. We've embedded this purpose through three areas we believe we can make the most impact, and have the track record, skills and connectivity to achieve it.

It's bold and we know we can't do it alone. In fact, we wouldn't want to. Collaboration is at the heart of achieving our purpose – whether that's working with banks, regulators and government to rebuild trust or working with the public sector to build a business environment that supports sustainable and inclusive growth.

We believe that today's world is all about connecting across businesses and industries, between public and private. And we have a track record of making that happen. Working with dynamic growing businesses is in our DNA. We provide advice to more than 40,000 dynamic organisations across the public and private sector, and working with them excites us because we know they help a vibrant economy to thrive.

Working with our clients also means we see the challenges of doing business in a complex and interconnected world first hand. This means we're in an ideal position to help turn these new realities into opportunities, and to do so in a way which makes a direct contribution to building a stronger society for everyone at the same time. We are confident that focusing on shaping a vibrant economy is good for our clients, good for the communities they serve and good for our business.

As a Grant Thornton member firm, we are part of a network of over 40,000 people in over 130 countries. In the UK, we are led by 185 partners and over 4,500 people under the UK's first shared enterprise model.

Grant Thornton

grantthornton.co.uk

67

Sources

1 Start Up Britain Startup Tracker,” Start Up Britain, accessed September 12 2016, http://startupbritain.org/startup-tracker/.

2 Lord David Young, “Small Business is Stronger than Ever,” The Telegraph, February 10 2015, accessed September 12 2016, http://www.telegraph.co.uk/finance/comment/11400986/Lord-Young-Small-business-is-stronger-than-ever.html; Chris Rhodes, “Briefing Paper Number 06152,” House of Commons, accessed September 12 2016, http://goo.gl/PCBCMe, p. 3, p. 5.

3 Start Up Britain Startup Tracker,” Start Up Britain, accessed September 12 2016, http://startupbritain.org/startup-tracker/.

4 Chris Rhodes, “Briefing Paper Number 06152,” House of Commons, accessed September 12 2016, http://goo.gl/PCBCMe, p. 5.

5 Ibid.

6 Ibid.

7 Department for Business, Innovation and Skills, BUSINESS POPULATION ESTIMATES FOR THE UK AND REGIONS 2015

8“GEDI Info: UK,” The Global Entrepreneurship and Development Institute, accessed September 16 2016, https://thegedi.org/countries

9 “Global Innovation Index Analysis 2016,” Global Innovation Index, accessed September 16 2016, https://www.globalinnovationindex.org/analysis-indicator.

10 “Start Up Britain Startup Tracker,” Start Up Britain, accessed September 12 2016, http://startupbritain.org/startup-tracker/.

11 Chris Rhodes, “Briefing Paper Number 06152,” House of Commons, accessed September 12 2016, http://goo.gl/PCBCMe, p.

12 Ibid.

13 Ibid.

14 Ibid.

15 “High Growth Small Business Report 2014,” Octopus Investments, accessed September 16 2016, http://www.highgrowthsmallbusiness.co.uk/HGSB-report-2015.pdf, p. 3.

16 Michael Anyadike-Danes, Mark Hart and Jun Du, “Firm Dynamics and Job Creation in the UK,” Enterprise Research Centre, accessed September 16 2016, http://www.enterpriseresearch.ac.uk/wp-content/uploads/2013/12/ERC-White-Paper-No_6-Firm-Dynamics-final.pdf, p. 5.

17 Ian Dale and Anna Morgan, “Job Creation; The Role of New and Small firms,” Trends Business Research and SBS, internal document (2001).

18 Chris Rhodes, “Briefing Paper Number 06152,” House of Commons, accessed September 12 2016, http://goo.gl/PCBCMe, p. 5.

19 Sherry Coutu, Chair, The ScaleUp Institute, ScaleUp Report, Published November 2014

20 “HMRC Tax & NIC Receipts: Monthly and Annual Historical Records,” HM Revenue and Customs, July 21 2016, accessed September 29, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/539194/Jun16_Receipts_NS_Bulletin_Final.pdf, p. 3.

21 A YouGov survey of 1014 businesses for the fourth Albion Growth Report

22 Ibid

23 Fictional data based on normal behaviour of a high growth entrepreneur and their tax lifecycle

24 “Economic and Fiscal Outlook, March 2015,” Office for Budget Responsibility, accessed September 28 2016, http://cdn.budgetresponsibility.org.uk/March2016EFO.pdf, p. 111.

25 “Corporation Tax Statistics,” HM Revenue and Customs, May 29 2015, accessed September 28 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/430380/CT_Statistics_May_2015.pdf, p. 16.

26 Ibid.

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28 The exchequer departments report, 7 April 2014, Accessed 29 September 2016.

https://www.nao.org.uk/wp-content uploads/2014/03/Tax-reliefs.pdf

29 IoD survey, September 2016 of 906 SMEs

30 Ibid.

31 Central and Local Rating Lists: Non Domestic Rating in England and Wales, Accessed through https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/396477/Central_and_Local_Rating_List-release_notes.doc.

32 “The Unsung Heroes of Business,” Prelude Group,

33 “Economic and Fiscal Outlook, March 2015,” Office for Budget Responsibility, accessed September 28 2016, http://cdn.budgetresponsibility.org.uk/March2016EFO.pdf, p. 111.

34 Ibid.

35 Chris Rhodes, “Briefing Paper Number 06152,” House of Commons, accessed September 12 2016, http://goo.gl/PCBCMe,, p. 5; SME defined here as businesses employing 0-250 people.

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37 “Business Population Estimates for the UK and Regions 2015,” Department for Business, Innovation and Skills, accessed September 29 2016, https://

www.gov.uk/government/uploads/system/uploads/attachment_data/file/467445/bpe_2015_detailed_tables.xls, sheet 28.

38 “SMEs: The Key Enablers of Business,” Department for Business, Innovation and Skills, December 2013, accessed September 29 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/266304/bis-13-1320-smes-key-enablers-of-business-success.pdf, p. 10.

39 “HMRC Tax & NIC Receipts: Monthly and Annual Historical Records,” HM Revenue and Customs, July 21 2016, accessed September 29 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/539194/Jun16_Receipts_NS_Bulletin_Final.pdf, p. 18.

40 Chris Rhodes, “Briefing Paper Number 06152,” House of Commons, accessed September 12 2016, http://goo.gl/PCBCMe,, p. 5.

41 “Awareness and Impact of the Employment Allowance – Research with Small Employers,” HM Revenues and Customs, accessed September 29 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/445848/Research_Report_368_Awareness_and_Impact_of_the_Employment_Allowance_-_Research_with_small_employers.pdf, p. 7.

42 “HMRC Tax & NIC Receipts: Monthly and Annual Historical Records,” HM Revenue and Customs, July 21 2016, accessed September 29, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/539194/Jun16_Receipts_NS_Bulletin_Final.pdf, p. 7.

43 Luke Johnson, http://www.spearswms.com/luke-johnson-brexit-british-start-ups-monsters-enterprise/

44 Office of Tax Simplification report, Closer alignment of income tax and national insurance contributions. 7 March 2016.

45 “Economic and Fiscal Outlook, March 2015,” Office for Budget Responsibility, accessed September 28 2016, http://cdn.budgetresponsibility.org.uk/March2016EFO.pdf, p. 111.

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48 “Total Tax Contribution – Surveying the Hundred Group,” PWC, accessed September 30 2016, http://www.pwc.co.uk/services/tax/insights/the-contribution-of-retailers-to-uk-public-finances.html.

49 Millennials more likely to use physical stores than other age groups,” Retail Gazette, July 18 2016, accessed September 30 2016, http://www.retailgazette.co.uk/blog/2016/07/millennials-likely-to-use-physical-stores-more-than-other-age-groups.

50 “Britain’s Pop-Up Retail Economy 2015,” Centre for Economics and Business Research, accessed September 30 2016, https://ee.co.uk/content/dam/everything-everywhere/documents/Pop-Up%20Economy%202015.pdf, p. 3, p. 8.

51 “Business Rates Review: Terms of Reference and Discussion Paper,” HM Treasury, March 2015, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413070/business_rates_review_final.pdf, p. 21.

52 Ibid., p. 23.

53 Mary Portas, Retail Consultant and Broadcaster, http://www.huffingtonpost.co.uk/2013/08/19/mary-

portas-high-street_n_3778037.html

54 Traditional Non-domestic Rates Collected by Local Authorities 2013-2014 and 2014-2015,” UK Government, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/477889/Table_1_for_NNDR3_201415.xlsx; “National Non-domestic Rates Collected by Local Authorities 2013-2014,” UK Department for Communities and Local Government, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/380774/Revised_NNDR3_2013-14_Statistics_Release.pdf, p. 4; “Business Rates Review: Terms of Reference and Discussion Paper,” HM Treasury, March 2015, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413070/business_rates_review_final.pdf, p. 6.

55 “Business Rates Multipliers,” Southampton City Council, accessed September 30 2016, https://www.southampton.gov.uk/business-licensing/business-rates/business-rates-multipliers.aspx.

56 From lobbying letter in July 2016 “Retail lobby groups unite to demand urgent reform of business rates system,” The Telegraph, July 9 2016, accessed September 30 2016, http://www.telegraph.co.uk/business/2016/07/09/retail-lobby-groups-uniteto-demand-urgent-reform-of-business-rat/.

57 “Economic and Fiscal Outlook, March 2015,” Office for Budget Responsibility, accessed September 28 2016, http://cdn.budgetresponsibility.org.uk/March2016EFO.pdf, p. 111.

58 “Table 14.1: Capital Gains Tax,” UK Government, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/493169/Table_14_1.pdf.

In 2008-9 (the latest date for which figures are available) UK and foreign shares not listed on the London Exchange, which includes business assets, made up 45.2% of total chargeable CGT gains. Applying this proportion to the total tax receipts for CGT in 2014-15 equates to total tax receipts on non-listed business assets of £2.53 billion. “Table 14.7 Capital gains tax: Estimated number of taxpayer disposals, disposal amounts and chargeable gains, by asset types, disposed of in 2008-09,” HM Revenue and Customs, accessed 13 October 2016, HYPERLINK “http://webarchive.nationalarchives.gov.uk/20140109143644/http:/www.hmrc.gov.uk/stats/

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59 “Budget 2016,” HM Treasury, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508193/HMT_Budget_2016_Web_Accessible.pdf, p. 139.

60 Ibid

61 “Estimated Costs of the Principle Tax Expenditure and Structural Reliefs,” UK Government, accessed October 3 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/487119/Dec15_expenditure_reliefs_Final.xlsx.pdf.

62 IoD Survey, September 2016, 906 respondents

63 Ibid.

64 Rob Moss, “Employee-Shareholder Contracts Barely Used,” Personnel Today, March 9 2015, accessed September 30 2016, http://www.personneltoday.com/hr/employee-shareholder-contracts-rarely-used/.

65 “Employee Share Scheme Statistics for 2013-14,” HM Revenue and Customs, September 30 2015, accessed October 3 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/409204/150 30 3ESS NationalStats CommentaryDocument.pdf, p. 9.

66 “Estimated Costs of the Principle Tax Expenditure and Structural Reliefs,” UK Government, accessed October 3 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/487119/Dec15_expenditure_reliefs_Final.xlsx.pdf.

67 Office of National Statistics, Employee Share Schemes Statistics for 2013-14, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/464263/ESS_National_Statistics_Commentary_Document.pdf

68 Ibid.

69 Ibid.

70 “Business Tax Guidance: Corporation Tax: Research and Development Tax Relief,” UK Government, accessed October 3 2016, https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief.

71 “Estimated Costs of the Principle Tax Expenditure and Structural Reliefs,” UK Government, accessed October 3 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/487119/Dec15_expenditure_reliefs_Final.xlsx.pdf.

72 Ibid.

73 Quote supplied by Tony Langham, Non-Executive Chairman, Unbiased.co.uk in October 2016

74 “Claims for the R&D tax credit by scheme and financial year, 2000-01 to 2013-14,” HM Revenue and Customs, accessed October 3 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/459686/2015_RD1.pdf.

75 “Research and Development Tax Credit Statistics,” HM Revenue and Customs, September 2015, accessed October 3 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/552382/R_D_Tax_Credits_Statistics_September_2015.pdf, p. 6.

76 Ibid.

77 Ibid.

78 “Rise in Export Assistance Programs Helps Small Business Expand,” Forbes.com, November 27 2012, accessed October 3 2016, http://www.forbes.com/sites/ups/2012/11/27/rise-in-export-assistance-programs-helps-small-businesses-expand/#31b57ea73da7.

79 “Business Rates Relief: Small Business Rates Relief,” UK Government, accessed October 4 2016, https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief.

80 Ibid.

81 England/UK rates in years for which overlapping data is available

71

Graph shows total tax take (business rates) in England, multiplied by the proportion of businesses in the rest of the UK to provide an estimate for the total UK tax take. “Traditional Non-domestic Rates Collected by Local Authorities 2013-2014 and 2014-2015,” UK Government, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/477889/Table_1_for_NNDR3_201415.xlsx; “National Non-domestic Rates Collected by Local Authorities 2013-2014,” UK Department for Communities and Local Government, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/380774/Revised_NNDR3_2013-14_Statistics_Release.pdf, p. 4; “Business Rates Review: Terms of Reference and Discussion Paper, March 2015,” HM Treasury, accessed September 30 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413070/business_rates_review_final.pdf, p. 6.

82 “Table A5: Corporate Tax,” UK Government, accessed October 4 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/547361/table_A-5_Aug16.pdf.

83 “Annual Investment Allowance reduction from January 2016,” Lovewell Blake, accessed October 4 2016, http://www.lovewell-blake.co.uk/aia-reduction-jan-16.

84 Comment supplied by Toby Baxendale, Founder & CEO, Seafood Holdings on growthbritain.co.uk, on Tuesday 19th Nov 2013 at 09:50

85 Zephyr Database, accessed October 4 2016, https://zephyr.bvdinfo.com/version-2016718/Home.serv?product=zephyrneo.

86 Quote supplied by Tim Hames, Director General, BVCA in October 2016

87 “Enterprise Investment Scheme and Seed Enterprise Investment Scheme: Statistics on Companies Raising Funds,” HM Revenue and Customs, January 2016, accessed October 4

2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494624/January_2016_Commentary_EIS_SEIS_Official_Statistics.pdf, p. 6.

88 Duncan Cheatle, “The Seed Investment Scheme and the Oliver Twist Effect,” Startups.co.uk, October 22 2014, accessed October 4 2016, http://startups.co.uk/the-seed-enterprise-investment-scheme-and-the-oliver-twist-effect/.

89 “Alternative Investment Report 2015/16,” Intelligent Partnership, accessed October 4 2016, https://intelligent-partnership.com/wp-content/uploads/2016/06/EIS-2015-2016.pdf, p. 7.

90 Ibid.

91 Ibid.

92 Ibid.

93 “Enterprise Investment Scheme and Seed Enterprise Investment Scheme: Statistics on Companies Raising Funds,” HM Revenue and Customs, January 2016, accessed October 4 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494624/January_2016_Commentary_EIS_SEIS_Official_Statistics.pdf, p. 6.

94 “Enterprise Investment Scheme and Seed Enterprise Investment Scheme: Statistics on Companies Raising Funds,” HM Revenue and Customs, January 2016, accessed October 4 2016, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494624/January_2016_Commentary_EIS_SEIS_Official_Statistics.pdf, p. 7.

95 Speaking at the Growth Investor Awards 2015

96 Comment supplied July 2016