HM Treasury has announced new ISA rules will make it easier for small and medium-sized business (SME´s) to set up more easily and have better prospects of future growth. The policy outlines plans to include SME´s on the stock market in order to encourage investors to inject capital into emerging businesses to give them more equity.
The new rules have been brought forward by the coalition government and will come into effect this autumn. The initiative forms part of the government´s commitment to give businesses owners access to finance and support and promotes investment that delivers sustainable economic growth.
The decision to advance the policy will mean that SME´s can seek alternative avenues to secure finance and inject cash flow into the struggling UK economy the new qualifying criteria will mean that over one thousand companies listed in the Alternative Investment Market (AIM) will be eligible to receive ISA investment free of tax.
Tax free ISA´s
Over £190 billion invested into UK ISAs are held in existing stocks and shares and given the low Bank of England interest rates holders have received very little in return for their investment over the last five years. The new policy will provide savers with tax efficient ways to hold shares traded on SME markets.
Economic Secretary to the Treasury, Sajid Javid said, “The government is determined that small businesses are given every opportunity to fulfil their potential. We want the UK to be the best place to start and grow a business.”
According to the statement issued by the Treasury, the majority of respondents agreed to the government proposal, and those that expressed concerns and alternative approaches with receive a reply in due course. On the balance of things it seems the proposed approach is the best way forward.
What implications will this have on SME´s annual tax liabilities
The government has not yet announced whether small and medium-sized enterprises will be taxed if they receive an investment, but the likelihood is that ISA investments will be tax free unless business owners receive an income from quantifiable profits over a certain threshold.
In a comparison test, under the current rules of Corporate Venturing Scheme, businesses receiving investments receive tax relief of up to 20 per cent of the amount of investment provided the shares are held throughout a qualification period. It is feasible that a similar approach will be applied for ISA investments.
When small businesses receive financing from third party investors, the issues can become very complicated depending on the amount they invest, what interest they have in your business and the period of time in which they are investing. As a consequence, third party investments can have a knock on effect on your annual tax liabilities.
When we receive more news with regards the tax implications of the proposed ISA investments we will let you know. In the meantime, if you would like more advice about your taxes with regards outside investors feel free to call Taxaccolega, a low fixed fee accountant, and speak with one of our friendly and qualified accountants on 08000 235 234 or by emailing email@example.com.