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Budget welcomed by BVCA

John Mackie, chief executive of the British Venture Capital Association, has welcomed the changes put in place by UK chancellor Gordon Brown’s 2002 budget. Mackie said in a statement: “We will continue to press for further improvements in capital gains tax and share option schemes, as well as the further simplification of the tax system as it affects growth businesses.” Among those set to benefit are Venture Capital Trusts (VCTs).

VCTs will now retain their tax-approved status if they merge or are wound up. In the event of a merger or wind-up under the previous regime investors lost their 20 per cent income tax relief on investments up to £100,000 and capital gains reinvestment relief, which allows them to defer capital gains tax on any profit if they reinvest it. This should help make the trusts more attractive to private investors, a move that could help them raise money in a climate where several have been withdrawn after failing to meet minimum funding levels. Jill Hallpike, a professional support lawyer in tax at European law firm SJ Berwin, said: “These changes will allow consolidation in the VCT market and mean that trusts will be able to focus on commercial rather than tax considerations when making decisions.”

Small businesses were also the beneficiaries of a number of tax cuts. The starting rate for corporation tax has been cut from 10 per cent to zero and small companies’ tax has been reduced by 2 per cent to 19 per cent. An increase in the value-added tax registration threshold was amongst measures to alleviate the effect this tax has on smaller companies. Changes to encourage innovation and technical advances include the extension of research and development tax credits. Under the previous system, SMEs controlled by a single venture capital fund were not eligible but now the credit will be available to more companies, including larger businesses.