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CBI Seeks UK Tax Break For Investing In Mid-Sized Firms

by Robert Lee,, London

27 August 2015

The Confederation of British Industry (CBI) and accountancy firm BDO have called on the UK Government to provide income tax relief to savers who invest in long-term debt funding for medium-sized businesses (MSBs).

In a new report, "Stepping up: fixing the funding ladder for MSBs," the CBI and BDO describe MSBs as a "forgotten army." The CBI defines an MSB as a firm having an annual turnover of between GBP10m (USD15.5m) and GBP100m. It calculates that MSBs represent just 1.8 percent of companies but generate nearly a quarter of private sector revenue and account for 16 percent of total employment.

According to the report, more than half of MSBs find it hard to access a loan for longer than five years. It argues that the Government should better incentivize this type of funding.

The CBI and BDO recommend the introduction of a new financial vehicle in the form of a Long Term Lending Trust (LTLT). The LTLT would extend tax incentives to those who are willing to commit to providing long-term funds to MSBs for at least five years. The CBI and BDO said the scheme should target individual savers, offer a return based on yield not capital gain, and provide income tax relief, with a deduction from income tax in the year of investment.

The CBI and BDO envisage the LTLT working in a similar way to the existing Venture Capital Trust (VCT) scheme. Under the VCT scheme, introduced to encourage investment in small unquoted companies, VCTs and their investors enjoy certain tax reliefs. The LTLT would cost the Government GBP310m a year, the CBI and BDO estimate.

John Cridland, CBI Director-General, said: "Building up a British 'mittelstand' of successful medium-sized businesses is mission critical to our economic future. With little recognition, these firms quietly toil away, creating jobs in communities and boosting growth in every corner of the nation."

"A key part of unlocking their enormous potential is for the Government to fix the funding ladder, filling in the gaps in supply of long-term finance that the UK's brightest growing firms need to succeed. Incentivizing savers to invest in our businesses for the long-run is a win win. It offers them attractive, alternative investment packages, while helping propel medium-sized businesses along their growth path, boosting the economy as a whole, and enhancing productivity."

TAGS: tax | investment | business | tax incentives | equity investment | United Kingdom | small and medium-sized enterprises (SME) | trade association | trade | alternative investment | individual income tax | services

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