by Daniel Green (Principal Fellow Entrepreneurship, Department of Bioengineering)
Last week’s UK budget had plenty that will (mostly) strengthen research-driven industries in the UK. One measure, a targeted cut in taxes on share trading, was foreshadowed in the CSEP report on the UK’s Heathtech industry. Other measures include more tax breaks for investing in later-stage private companies and, on the downside, a reduction in the tax benefits of investing through Venture Capital Trusts (VCTs).
As always with a UK budget, the small print in is what counts. Here’s a summary of tax-related measures that will affect all knowledge-based sectors where a thriving entrepreneurial environment is part the UK’s growth story. We briefly discuss non-tax measures after this section.
Four measures support that growth story, and two do not. First, the good news.
- The UK will be more attractive to early-stage investors through making UK IPOs more attractive. CSEP Healthtech report proposed the elimination of stamp duty tax from trading in shares post-IPO. The Budget announced this but limited to trading for three years post-IPO. This helps even start-up companies because since investors always have exit risks in mind.
- Mid-stage private medtech, biotech and deep tech companies will be able to raise private investments more easily from UK tax-paying investors. Knowledge-intensive companies will be able to raise money under EIS and from VCTs to a max of £40m (currently £20m). This will especially help companies in life sciences and deeptech where many years of product development are needed before revenues overtake costs. The annual max rise from £10-£20m.
- Attracting skilled employees into high-risk businesses will become easier (1). Entrepreneurial companies use shares and options to incentivise teams, and now companies up to 500 employees (250 previously) will be able do this under a favourable tax regime.
- Attracting skilled employees into high-risk businesses will become easier (2). These tax breaks will remain if shares are sold via a new a new form of share trading called PISCES – an embryonic alternative to selling shares to sales on a recognised stock exchange.
And two measures that do not support the growth story (but may increase government tax revenues).
- Founders and potentially investors will pay more tax on some exits. Business Asset disposal relief (formerly Entrepreneurs’ Relief) will go up from 14% to 18%.
- Some investors will pay more tax when they invest. Income tax relief for VCTs will fall from 30% to 20%.
On a final positive note, in addition to these tax-related changes highlighted above, the government announced measures to increase and speed up grant funding (through UKRI) and equity investment (through the British Business Bank).
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