Enterprise Investment Scheme and Venture Capital Trusts

Legislation is to be introduced in Finance Bill 2011 to increase the rate of income tax relief given under the Enterprise Investment Scheme ("EIS") from 20% to 30% with effect from 6 April 2011.

Legislation to be included in the Finance Bill 2012 will for both EIS and Venture Capital Trusts increase:

  • the employee limit to fewer than 250 employees (currently, 50);
  • the size limit to gross assets of no more than £15million before investment (currently £7million);
  • the maximum annual amount that can be invested in an individual company to £10 million (currently £2 million); and
  • the annual amount that an individual can invest under the EIS to £1million (currently £500,000).

These changes will, if approved, apply to shares in investee companies issued on or after 6 April 2012.

All changes subject to State aid approval.

Intellectual Property and R & D

Patent Box

As announced in the 2009 Pre-Budget Report, the Government has confirmed that it will consult on the introduction of a lower rate of corporation tax (10%) for income from patents. The intention is for a consultation document to be published in May 2011, and legislation to be contained in Finance Bill 2012.

Research and development Tax Credits for SMEs

Subject to State aid approval, the additional deduction for qualifying R & D expenditure given to SMEs in computing business profits or losses for corporation tax purposes will increase from 75% to 100% of the qualifying R & D expenditure: a total deduction of 200%.

Also subject to State aid approval, legislation will be introduced in Finance Bill 2012 to (a) increase the rate of the additional deduction for qualifying R & D expenditure given to SMEs in computing business profits or losses for corporation tax purpose by a further 25%, giving a total deduction of 225% from 1 April 2012, and (b) simplify the rules of R & D tax relief for SMEs.

To allow for the above increases, the Government has also announced a decrease in the rate of deduction given to SMEs which claim vaccine research relief:

  • from 1 April 2011, the rate of vaccine research relief will be reduced from 40% to 20%; and
  • from 1 April 2011, SMEs will be prevented from claiming vaccine research relief at all.

The Government is to respond in May 2011 to the R & D consultation paper published in December 2010. It has also announced that it intends to simplify the legislation relating to R & D tax credits in Finance Bill 2012 by:

  • abolishing the rule limiting a SME company's payable R & D tax credit to the amount of PAYE and NICs it pays;
  • abolishing the £10,000 minimum expenditure condition for all companies; and
  • amending the rules governing the provision of relief for work done by subcontractors under the large company scheme.

CGT Entrepreneur's Relief

With effect from 6 April 2011, the lifetime limit for entrepreneur's relief will double from £5 million to £10 million. The increased limit will apply to disposals on or after 6 April 2011. To the extent that any gains realised by the taxpayer before that date exceed the lifetime limit of entrepreneur's relief in force at the date of disposal, CGT will remain payable at the full rate of 18% / 28% on the excess, but only the £5 million of relief claimed will be set against the increased limit for future qualifying disposals.

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