ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. Careers

    Access current vacancies and understand what it’s like to work here at ICAS.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Find a CA
  • Careers
  • Contact us
  • Become a CA
  • CA jobs
  • SCABA
  • ICAS Foundation
  1. Members
    1. Become a member
    2. Manage my membership
    3. Benefits of membership
    4. Professional development
    5. Mentoring
    6. Member rewards
    7. CA jobs
    8. Area networks
    9. International communities
    10. Get involved
    11. CA Connect
    12. CA magazine
    13. Top Young CAs
    14. Career breaks
    15. The ICAS member app
    16. Newly admitted members 2021
    17. CA Wellbeing
  2. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
  3. CA Students
    1. Studying with ICAS
    2. Timetables and exams
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
  4. Employers
    1. Become an Authorised Training Office (ATO)
    2. Resources for Authorised Training Offices (ATO)
    3. Professional entry
    4. Apprenticeships
  5. Thought leadership
    1. Technology
    2. Trust
    3. Talent
    4. Research
    5. CA Agenda podcast
    6. CA Agenda videos
    7. ICAS webinars
    8. CA Summit
  6. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Charities
    5. Coronavirus
    6. Corporate and financial reporting
    7. Business and governance
    8. Ethics
    9. Insolvency
    10. Pensions
    11. Practice
    12. Public sector
    13. Sustainability
    14. Tax
  7. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  8. Governance
    1. At a glance
    2. Charter, rules and regulations
    3. Council
    4. Boards and key committees
    5. Public reporting
    6. Executive team
    7. Diversity
    8. Member research
  9. Contact us
    1. ICAS technical helpdesk
    2. ICAS logo request
  10. Careers
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS

How to turbo-boost startups

People talking at desk
  • LinkedIn (opens new window)
  • Twitter (opens new window)
Donald-Drysdale By Donald Drysdale for ICAS

18 April 2018

Main Points

  • ICAS President Sir Brian Souter wants to see a new tax relief to encourage investment in small entrepreneurial businesses.

  • The Small Business Enterprise Scheme (SBES) would help companies and unincorporated businesses during their critical startup phase.

  • SBES would be simpler and more accessible than SEIS or EIS.

Relatively few startups grow into large and successful businesses, and Donald Drysdale describes an important new initiative which might help them to find the capital they need.

Small businesses need funding

Philanthropist Sir Brian Souter is a successful entrepreneur who developed a substantial business, Stagecoach Group, from very modest beginnings. He is about to complete his presidential year at ICAS, where he has brought valuable business acumen to the role.

Souter’s business is now global but it started in a small way, with just one bus, and in its early years he received valuable financial support from friends and family. Not all startups are so lucky, and many fail because of a lack of funding.

Small businesses are the lifeblood from which, if given the chance, larger businesses may grow, but very few succeed in doing so.

In a fresh initiative to improve the situation, Souter is proposing the introduction of a new, accessible tax relief to encourage investment in small entrepreneurial businesses. He has dubbed this the Small Business Enterprise Scheme (SBES), and it is explained here.

Why do we need another investment incentive?

The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) already exist to encourage new equity investment in certain qualifying companies. However, their stringent terms and conditions make them excessively complex for both companies and potential investors, and they cannot be used without expensive legal and tax advice.

Many startups are structured initially as sole traders or partnerships, either for simplicity or to give the proprietors access to tax relief for early trading losses, so they fall outside the scope of SEIS or EIS. Souter believes that SBES would meet a crucial need by extending the impact of SEIS to a broader range of businesses during their critical startup phase.

Because of their complexity, SEIS and EIS are claimed mainly by wealthy, sophisticated investors who can understand and afford the professional advice needed. By contrast, the aim of SBES would be to encourage investment by those with more limited means but closer to the businesses in question – for example, family, friends and the local community.

How would SBES work?

SBES would not be restricted to investment in corporate entities. Sole traders, partnerships or companies would be eligible to receive investment through SBES. The concept of ‘approved trades’ that exists in SEIS would be replaced so that the new relief would be available to any venture that exists to trade in goods or services with a view to profit.

A business would be eligible to benefit from aggregate SBES investment funds of up to £100,000 at any time – as loans and/or (where applicable) equity. On receipt of the funding in cash, the business would be entitled to claim an immediate tax credit equal to 25% of the sum invested, representing the basic rate of income tax on the grossed-up value of the sum received – just as a charity does with Gift Aid.

An individual would be allowed to invest between £500 and £20,000 (net of the tax credit) in SBES loans and/or equity over a three-year period. Investing through SBES would not trigger any immediate tax repayment for the investor, and they would need to certify that they had paid enough income tax to fund the tax credit paid to the business.

As an incentive to the investor, their returns from the SBES investment over the succeeding ten years would be tax-free, including loan interest not exceeding a specified rate. It is suggested that this limit would be 4% per annum, but I wonder whether a limit varying with Bank of England base rate would make more sense.

Capital gains realised from an SBES investment during the same period might also be tax-free under the scheme.

Anti-avoidance

Anti-avoidance measures are always required, but they would have to be kept to a minimum to ensure that SBES was simple and accessible for ordinary people.

SBES would only be available to a business with annual turnover not exceeding (say) £250,000. It would have to have at least one employee unrelated to the proprietor or major shareholder, and no more than (say) 20 employees in total. The investment would need to remain in the business for at least three years.

By paying the tax credit to the business rather than the investor, the relief would remain as simple as possible to the individual investor while serving a more radical anti-avoidance purpose. By being forced to register with HMRC to receive its tax credit, the business would thereby become visible to the tax authorities, ensuring that it was brought fully into the tax system.

Conclusion

Souter believes that politicians need to pay more attention to the creation of wealth, because that then makes a fair distribution of wealth much easier to achieve. Measures that encourage business startups and provide them with the funding they require are likely to offer valuable payback in the form of economic growth.

Under current SEIS and EIS rules, sophisticated investors are offered early tax repayments but they are driven primarily by their weighing up of the investment risks and likely returns. Under SBES investors closer to the business could be attracted by the prospect of their investment returns being tax-free for ten years, but would be driven also by their genuine desire to help businesses which are closer to them or their local communities.

ICAS, with its public interest remit, campaigns for simplification of taxes. We all want a simpler tax regime and an environment in which small businesses will flourish. SBES has merit, and HM Treasury should give it careful consideration.

Article supplied by Taxing Words Ltd

How to simplify tax law and policy

By Donald Drysdale for ICAS

15 January 2018

Header

VAT threshold under the microscope

By Donald Drysdale for ICAS

23 March 2018

2021-04-alterledger 2021-04-alterledger
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba
ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: