They report that the Chancellor has drawn attention to the need for tax increases to remedy the deficit (February 20). Taxes have to go up at some point. We all know this. However, taxation must be fair and not counterproductive.
The Business Expansion Scheme was launched in 1983 to help smaller businesses raise funds – a significant problem at the time. Together with their successor, the Enterprise Investment Scheme, these programs have massively improved the access of small and medium-sized companies to capital.
This is needed more than ever as banks are pulling out of financing entire sectors and real lending rates for smaller businesses rise as opposed to financing larger businesses.
Companies I founded benefited from both BES and EIS. However, as a paid director, my own investments in these companies could not be relieved. Like many entrepreneurs, I’ve still chosen to invest rather than put money in pensions or other investments. I took this risk by promising to support the Entrepreneurs’ Relief on any profits.
That relief has already been reduced to a lifetime limit of £ 1 million – perhaps enough to buy a smaller apartment in central London. To even take that away would be unfair. The government should really focus on areas such as the tax treatment of carried over interest for private equity which, according to the latest figures available, benefited 2,000 people, each making an average of more than £ 1 million a year and costing the taxpayer £ 440 million .
When I weigh SMEs against the dubious net economic benefits of private equity, I know which tax break I want to end.
Former Minister of Finance at the Ministry of Finance
General Manager, Cubana Bar-Restaurant, London SE1, UK