The 2013 Budget and tech start-ups
The 2013 Budget was a balance between stimulating growth and tackling the budget deficit.
Against this backdrop, the Chancellor was not in a position for a huge tax give-away, but many of his measures did focus on start-ups and SMEs and a number of measures in particular will be of interest to start-ups and SMEs operating in the technology sector.
See below for more information.
- Introduced from April 2014;
- Exemption from employers' national insurance contributions up to £2000 per year.
This will make it easier financially for tech start-ups and SMEs to employ new people and is a welcome measure, albeit it is disappointing that it has not been introduced with immediate effect.
- Creates a new employment status from September 2013;
- The employee gives up certain employment rights (most significantly, the right to claim unfair dismissal unless the claim involves discrimination) in return for being gifted shares worth at least £2,000;
- The disposal of the shares will be capital gains tax exempt in relation to the first £50,000 worth of shares gifted; there will be a deemed payment of £2,000 by the employee for the shares (thus reducing income tax and employee NICs costs for the employee-shareholder).
The new status received a huge amount of criticism at the consultation phase, so it remains to be seen what the level of take-up will be on this, but it does provide a useful alternative for innovative tech start-ups to a traditional employment status.
By way of update the clause that introduces the employment status in the Growth and Infrastructure Bill has been defeated in the House of Lords. Unless the House of Commons can amend the clause in a way that the House of Lords approves, this employment status may now not come into force.
From April 2014 there will be no Stamp Duty (or Stamp Duty Reserve Tax) on transfers of shares on AIM and other junior markets.
This is a huge boost to SMEs who typically favour an AIM listing over a full listing and, when combined with the recently proposed High Growth segment for the LSE main market, continues to illustrate the UK's efforts to have a world class stock exchange for fast growth technology companies.
Seed Enterprise Investment scheme
- Set up last year;
- Offering generous tax breaks for those investing in early-stage qualifying companies;
- The Budget has extended the capital gains tax exemption (up to £100,000) to gains arising in the 2013-14 tax year, but the exemption will be limited to 50% of the gains reinvested (i.e. up to £50,000).
This will encourage investment into qualifying companies and will provide an alternative to debt as a method of raising finance. The generous tax reliefs will be particularly beneficial for encouraging investment into early stage technology companies as it allows investors to offset some of the risk of investing into high potential/high risk technology companies.