Sign the PetitionSubmission on Small Business Finance

to Adam Afriyie, Shadow Minister for Science and Innovation and Mark Prisk, Shadow Minister for Business

This submission relies heavily on the Richard Report "Small Business and Government" to the Conservative Party of May 2008.

The signatories agree wholeheartedly with the broad conclusions and recommendations of the Richard Report.

The following specific detailed suggestions could, in the signatories' opinions, be usefully added to government policy:

Enterprise Investment Scheme

Problem:
EIS Relief, while broadly excellent, has four main drawbacks:
  • It is not available to existing Directors of the investee company
  • It is restricted to ordinary shares
  • It is restricted to higher rate tax
  • It is relatively complex to administer
Solution:
  • Extend the scheme to non-executive directors whether or not they already hold office
  • Extend the scheme to all genuine third party risk money, regardless of 'type' of investment: loans of greater than three years, preference shares, convertible loans
  • Extend the scheme to full tax relief (not many basic rate taxpayers will wish to take advantage, but why not if they have the means? And it will effectively increase the gearing on the investment from the investor's perspective from 1in4 to 2in3)
  • Simplify the administration by making the investor responsible through his tax return, subject to penalty for wrongful claiming
  • Simplify the administration by making the rules and exclusions simpler: retain certain non-qualifying businesses (property, financial services, investment and so forth) and geographical and trade limitations (must be UK domiciled with UK domiciled shareholders) but otherwise de-restrict so as to facilitate taxpayer compliance and reduce administration costs.

R&D tax credits

Problem:
R&D tax credits are broadly very welcome but:
  • They do nothing to assist start-up research for new businesses which are (almost by definition) non corporation tax and non PAYE payers
  • They fail to reflect the considerable risk taken by start up businesses, despite the very significant future benefits to the economy brought by successes.
Solution:
  • Create a new system whereby longer term commercial loans can be granted to SMEs against future R&D tax credits (so the loan can be repaid from the tax credit when the company begins to pay tax); such loans to be underwritten by the government, hence written off in the event of company failure
  • Create a new system whereby private third party investment into qualifying SME R&D is matched by government, whether or not the investment already carries EIS relief
  • Create new definitions of 'qualifying R&D' (technology, engineering, environment etc?), or create exclusions (sales methodology, administration, training)
  • The qualifying utilisation of the matched funds should be guaranteed by the investor: if audit proves that the funds were not spent on a qualifying purpose, he has to repay the matching through the tax system. This will allow early stage research to be very significantly funded by the government, but it will only follow market forces and third party investment, and policed through the existing administration of HMRC.

Enterprise Finance Guarantee Scheme

Problem:
EFG is simply not working as bankers will only provide loans against assets and small companies simply don’t have suitable security.
Solution:
  • Government should underwrite the major part of each individual loan, with
  • lenders taking a small share of the risk to ensure sensible lending (as with the SFLGS that it replaced)

A new 'Stock Exchange' for Innovation - an 'Innovation Exchange'

Problem:
The chronic waste, and/or leakage, of 'British Inventiveness' which is an inevitable consequence of the traditional avenues of commercialisation open to Inventors.
Solution:
The microFunding secure internet marketplace where Big Business, SMEs and individuals can match 'Technical/Business Requirement' with 'Innovation/Invention' with 'Business skills' and with early stage 'Investment'.

This, especially if coupled with the above funding initiatives, will encourage and permit the creation of a customer-led enterprise state.

It will be market-driven, efficient, responsive and effective.
And it will not cost a King's Ransom to achieve.

Signed

Chris Clegg - serial entrepreneur, Business Angel, founder microFunding and founder Equity Entrepreneur
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