Pictured above: Henry Briggs
Business Angels investing in companies to help fund research and
development could effectively double the value of their investment
as a result of some greatly improved reliefs announced in the
Budget, according to a Birmingham accountant. The change will
provide a much needed boost to small businesses seeking external
investment.
"Most people in business know how difficult it is to obtain bank
or loan funding for research and development which are largely seen
as high risk activity. Business Angels, or individual investors,
are potentially the best source of capital where the risk - and the
returns can be high," said Henry Briggs, Senior Partner at the
Birmingham office of Haines Watts.
"Little publicised changes in the small print of the Budget
reveal that an investment of, say, £100,000, will be at a net
cost of £70,000 to the investor," he said.
The changes are part of modifications to the Enterprise
Investment Scheme (EIS). Private investors, taking up shares
directly in companies of up to 30% of the total capital, can obtain
income tax relief at 30% of the value of their investment - an
increase from 20% on investments of up to £500,000.
For the company receiving the investment and using it for
qualifying research and development, the total deduction for
Corporation Tax is to be set at 200%, possibly rising to 225% for
SMEs. The benefit to a small company in tax savings is then
£40,000 on £100,000 expended.
"So, where an investor injects £100,000 at a cost of
£70,000, the company has received benefit of £140,000
(the investment and the tax saving) - thus doubling the angel's
original net investment," said Mr Briggs.
However, the benefits do not stop there.
"An angel may use such an investment to roll over or defer a
gain subject to Capital Gains Tax. Any increase in the value of the
qualifying investment in the company is free of CGT in the
future.
"For the companies raising such capital, the size restrictions
have been increased and a culture of encouraging research and
development should make the tax benefit of these projects easier to
predict."
Mr Briggs said that up-front tax reliefs to both parties would
be an encouragement to raising funds in this way.
"The Chancellor did say that his intention was to produce a
Budget for business growth and this is one initiative that will be
welcomed by businesses and investors. Of course, investors with
money to invest will need to undertake a rigorous assessment but
this incentive should provide a further and valuable source of
finance to smaller business," said Mr Briggs.
For more information on Haines Watts, please visit their website
here: www.hwca.com