Figures show that investment under the Corporate Venturing Scheme surged by 65% in its final year, leading some experts to suggest that the Government were too hasty in scrapping the scheme.
According to accountancy firm UHY Hacker Young, the amount larger firms invested in smaller companies during the final year the CVS was running rose by 65% to £28m.
The CVS scheme was created by the Labour Government to encourage investment in smaller high-risk businesses by larger firms, in exchange for 20% upfront tax relief on the investment value, as well as any losses incurred.
Over the 10 year period the scheme was in operation, just over £130m was invested in around 600 small businesses.
The CVS provided tax incentives for investment in unquoted business with gross assets under £7 million and limited the investment to up to 30% of the issuing company.
The incentives were available from 1 April 2000 to 31 March 2010 and offered three types of tax relief: Investment relief against corporation tax of 20% of the amount subscribed for full-risk ordinary shares; Deferral relief from tax when the shares were sold and the funds reinvested and relief against income if shares were sold at a loss.
Ironically, given the scarcity of lending currently available to small firms, UHY Hacker Young believe that the now-closed scheme could play a useful role in bridging the massive funding gap which has resulted from the collapse in bank lending to smaller businesses.
Corporate venturing is far more widespread in the US – with an estimated $1.9bn invested in 2010 alone. In fact, Intel has invested around $10bn on its own via its corporate venturing arm over the past decade.
Government to hasty in shutting down the CVS scheme
Roy Maugham, Tax Partner at the accountancy firm said: “The Government may have been too hasty in scrapping this scheme. The level of investment under the scheme had been gradually increasing over the past five years of its life.”
“Although the sums raised under the scheme were not huge they were a useful amount especially in light of the current drought of funding for small businesses.”
“With the FTSE-100 sitting on billions in cash there is no shortage of potential Corporate Venturing funds – it’s a case of encouraging big companies to do more. The possible benefits to the economy are huge.”
“George Osborne should consider reintroducing these tax breaks and widen the criteria for the Corporate Venturing Scheme. For example open it for investing in small business with assets in excess of the old limit of £7million and allow a stake of up to 50% in any one business.”
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