Small company investors: the missing ingredient

The fact that just one business, Trapoil, has floated on AIM to date this year says it all about the dire state of investment appetite for small companies.

It’s all very well for our politicians to pay lip service to the importance of helping this sector, but now is the time for action.

There are faint stirrings. In the usual leaks ahead of next week’s Budget, it is being reported that Osborne and co are looking to extend the scope of the Enterprise Investment Scheme.

This is all very well, and one must applaud the lobbying power of the EIS Association, but it does not go to the heart of the problem.

Instead, how does the government encourage a much wider range of investors – other than the select few who are trying to get away from paying vast income tax bills – into taking small company investment seriously without the Exchequer correspondingly losing large amounts of revenue? Elementary, my dear Osborne.

The beauty of Capital Gains Tax is that you only pay it if the business has been successful. A small company doing well will naturally generate more tax revenue, be it in the form of Corporate, PAYE, or CGT from its investors. In each case, the Exchequer has not had to lay out one single penny (nb this is not so with EIS) to generate more cash for its coffers.

So how can this economical CGT device be used to breathe life into the small company body corporate? Easy.

Set a very low rate of CGT (ie ten per cent) as a reward to all those who are prepared to take the risk of investing in companies with a value of less than £25m. This would cover most companies that are thinking of coming to AIM or PLUS as well as many thousands who prefer to stay in the private arena.

At the moment, an investor pays the same amount of CGT whether he or she makes a gain in Shell or Trapoil. I wonder which you would choose? Then again, if you received a financial recognition from HMRC for your investment in the smaller company, you would think again wouldn’t you?

Beneficial rates of CGT served the small company scene and the Exchequer well in the 1990s and will always do so.

Come on George. When you get to your feet next Wednesday, instead of blathering on about delivering a Budget for growth, give yourself more revenue, and reward the investor at the same time. That’ll get your mojo working.

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