SME Week – The role of tax in SME growth

 

By Andy Wood

]Carrots and sticks – The role of tax in North West SME growth

It is quite easy to criticise both the Government and HMRC in respect of recent tax measures. However, even with a pretty bare cupboard at the Treasury over the last few years, we have seen a number of attractive reliefs and initiatives targeted at SMEs.

Tax-Efficient Funding 

The old stalwart that is the Enterprise Investment Scheme (“EIS”) and its younger sister Seed EIS both allow SMEs to attract equity investment by providing attractive tax reliefs to those investors. Interesting however, that in the north west, claims are falling. However, this might have more to do with some tweaks to the relief, which is now focused where there is real risk in the business.

More recently, we have also had the introduction of Investors’ Relief which is a form of Entrepreneurs Relief for more passive investors.

Knowledge and capital investment

The Government has also nailed its colours to the mast in terms of wanting the UK to be at the forefront of innovation.

This has been underpinned in the tax system by the various Research and Development tax reliefs. Most recent figures for the North-West show a total of 4,465 claims were made by firms of all sizes totalling £220m which, in turn, involved £1.55 bn of expenditure.

Other reliefs such as Patent Box and reliefs for the creative industries have also provided a fillip to businesses based in the north-west.

Retaining staff

We also see evidence from clients of the tax system being used to attract and retain key members of staff, through the use of tax efficient share schemes, such as the Enterprise Management Incentive (“EMI”), which is a popular way of providing key members of staff with ‘skin in the game’.

We also see businesses increasingly looking at Employee Ownership models with figures suggesting this can improve a business’ performance (it can also offer a business owner an alternative route to exit)

Uncertainty and opportunity?

Much is said of how businesses struggle to cope with the Government passing greater responsibility for the orderly running of the tax system to taxpayers (or customers if you work at HMRC!). This is exemplified by the stop / start introduction of Making Tax Digital.

However, we have found that the sheer number and pace of changes to the tax system are a real concern for entrepreneurs and business owners. For example, recent changes to Entrepreneurs’ Relief have been so poorly drafted that, other than in the most straightforward cases, qualification for this attractive relief is no longer clear. Stability is what is required.

Of course, Brexit looms large over much of the UK and the north-west is no different. However, following the referendum, we have seen a large number of north-west businesses, who have taken the opportunity of a depressed pound to make their first serious forays in to overseas markets.

Andy Wood from ETC Tax has provided theBusinessDesk.com with a column as part of our SME week

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