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Labour’s tax plans must encourage investment

‘Sluggish’ Mansion House Compact is too slow for start-ups

Labour’s tax plans must support start-ups and not reduce the amount of tax relief they can obtain.

Simon Gleeson, a Partner in International Outsourced Accounting said:

The value of direct holdings of UK equities by UK funds is about £41 billion – 1-2% of total UK stock market value. UK institutional investors could be a key enabler to unlocking £328bn in tax revenues to the Treasury by 2029, as proposed by fintech body Innovate Finance.

However, it is embarrassing that British pension funds, who are institutional investors, appear to contribute less to the UK tech-community than their international counterparts. Especially when the UK has the strongest leading tech eco-system behind the US, with fintech being the jewel in the crown.

The Mansion House Compact, introduced by the previous Government’s Chancellor, Jeremy Hunt, is a commitment by ten of the UK’s biggest pension firms last year to pump 5% of their assets into start-ups by 2030, circa £50bn. But this has been slow to get off the ground and the commitment is not legally binding.

In order to support the UK tech eco-system, given the sluggish pace of the Mansion House Compact, the new Government needs to ensure they continue past tax incentives such as R&D tax relief, Patent Box, Entrepreneurs Relief, Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).

R&D tax relief allows small and medium-sized enterprises to reduce the tax they pay so they can more easily afford the costs of research and development; Patent Box encourages companies to keep their intellectual property (IP) within the UK by reducing the Corporation Tax they pay on profits from qualifying IP income to 10% and Entrepreneurs Relief allows entrepreneurs selling their business to pay less Capital Gains Tax (CGT).

However, there is a genuine concern that the SEIS and EIS, which both offer tax relief to individual investors who buy new shares in a small and early-stage business, will lose their CGT exempt tax status when the shares are subsequently sold. This extra tax cost could easily put investors off supporting UK start-ups with vital capital.

These tax incentives have underpinned the next wave of UK unicorns and fast-growth companies, and Labour must continue to support them without reducing the tax relief they offer.

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