Tax and NI

13. Investments and Tax

Various schemes exist to encourage investment in small to medium-sized companies.

13.1 The corporate venturing scheme is designed to encourage big companies to take stakes in smaller, unquoted ones.

• At least 20 per cent of the small company's shares must be held by individuals.
• Corporate assets must not exceed £15m before the share issue (or £16m after it).
• The small company must not obtain most of its income from royalty or licensing agreements, unless they relate to intellectual property or other intangible assets largely created by the company.
• Investors get corporation tax relief (at 20 per cent) if they hold shares for three years. They can defer tax on gains made in corporate venturing, if the proceeds are invested in another qualifying company. They must not hold stakes of more than30 per cent.
• Capital losses can be set against income.

13.2 Both enterprise investment and venture capital schemes are aimed at boosting investment in small unquoted companies - the former by individuals previously unconnected with the company, the latter by venture capital trusts (VCTs).

• The period for which such investments must be held to qualify for income tax relief under a VCT has risen to five years.
• The definition of control has been changed to focus on who controls the company, rather than how profits are distributed.
• The annual limit on investments qualifying for tax relief under the Enterprise Investment Scheme increased to £500,000 for shares acquired from 6 April 2008.
• For investors in VCTs income tax relief on qualifying investments is 40 per cent for the tax year 2008/09.
• Other measures include protection of enterprise investment scheme status if companies go into receivership.