The Quoted Companies Alliance (QCA), which represents small and mid-cap companies outside the FTSE 350, has launched a campaign lobbying the UK government to introduce tax breaks for companies raising equity finance. The QCA fears current tax rules may be encouraging companies to rely on debt for their financing needs.
Yvonne Redfern, chair of the QCA’s tax committee and corporate tax partner at accountancy firm RSM Robson Rhodes, said the current system only allows tax relief for the incidental costs of raising loan finance. The QCA aims to extend this relief to cover the costs incurred when raising finance on the public markets and through private equity. She has found that tax relief, currently favouring short-term debt as a financing method, does make a difference when companies look at the different ways of raising capital.
QCA says the government has recognised this anomaly, which is out of line with the tax regimes in countries such as Germany, where the costs of both types of financing are tax allowable. “Clearly the introduction of tax relief on equity funding would have short term implications for the Treasury, but arguably it would stimulate further fund raising by companies and, ultimately, contribute to even greater profits and tax revenues,” she said.