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Tax breaks ‘should be used to attract more SME backers’

Date Added: 25/02/2014  

Companies that supply financial backing to small and medium-sized enterprises (SMEs) should be offered tax breaks to persuade more investors to provide the funding many sorely need, according to a leading industry body.

It is a well known fact that many SMEs struggle to secure the funding they require to grow. The British Private Equity and Venture Capital Association (BVCA) believes corporate venture capital was an "untapped and potentially huge source" of funding for these small businesses. 

The BVCA also highlights that 90 per cent of businesses that private equity and venture capital firms invest in are SMEs. 

According to the organisation, the reintroduction of tax breaks, such as the Corporate Venturing Scheme (CVS), would encourage more investment. 

In 2000, the Labour government set up the CVS, offering relief of up to 20 per cent against corporation tax and against losses for businesses that purchased minority stakes in smaller and more high-risk companies.

The scheme was eventually concluded in 2010, after being judged as underused. Over the decade that the CVS existed, £132 million was invested in almost 600 small companies.

In a report, entitled ‘Budget Submission’, the BVCA said: "CVC's remarkable diversity of models and styles of investment behaviour and structure may represent 'the missing piece' the government is seeking to improve and expand SME financing.

"This is all the more important as other countries are already exploring introducing provisions to incentivise corporate venture investment in small companies."

Reintroducing the scheme would not violate European Union rules on state aid, as long as the government could prove that CVS was a necessary scheme, claims the BVCA.

The research from the BVCA coincides with the release of a separate report from the Confederation of British Industry (CBI), which stated that barriers to funding need to be removed for SMEs to flourish.

John Cridland, CBI director general, said: “For too long, the UK’s small and medium-sized companies have relied heavily on banks for most of their credit. If we do not act quickly to increase the range of available finance, other countries will steal a march on the UK.”

The CBI also recommends that the government offers short-term tax incentives to encourage investment.

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