The very kind @charonqc a twitter friend of mine has donated this painting to me.  The painting is titled “Let there be greed”.  A veritable thank you to M’learned, @Charonqc who has declined my offer of payment for his work.

Erm, well it’s probably more scientific than the “hide the decline” psudoscience the CRU were using.

The economy is a mess. Banks are not lending, or at least that’s the common perception and it might be easy to conclude that now is not a good time to launch a new business. But is that really the case? Companies are becoming risk averse, stripping their costs and in many cases this means shedding key employees with core competencies. Some of these employees are going to find themselves without an employer and an income and wondering what to do next, but what they do have are skills, and whilst their former employers are reeling from the shock that the economy has just experienced, now might very well be the best time to take commercial advantage of this and set up a new business offering those skills. In addition, with companies failing, administrators are selling off plant and equipment for pennies in the pound and there are bound to be bargains to be found.

So, lets assume that you’ve decided that now is your moment and you’re finally going to realise that long held dream of setting up your own business but you need cash to do it. What next? The banks are not looking like a good option but there is a whole world out there of potential investors, business angels, who if they can be convinced that they can get a good return on their money can be persuaded to invest in your business. First off you need to make your case and this is where writing a good business plan is crucial. I’m not going to go into detail about how to write a business plan here because that’s not the main purpose of this post but part of the sell in addition to the plan is the pitch and here we can use tax law to our advantage. I’m writing about UK tax provisions here.

THE PITCH – TAX BREAKS TO DIES FOR
As part of your pitch to an angel investor you can use the attraction of significant tax breaks on their investment. In addition to making financial sense you’ll impress your audience with your pitch simply because you’ve covered this which will be seen as a win win scenario. In the UK, at the time of writing, there is a government scheme called the Enterprise Investment Scheme (EIS) which allows, subject to some pretty strict provisions, for income tax relief on investments in a qualifying company, for 100% capital gains tax exemption on that investment, for loss relief (essentially capital losses treated as income losses for tax purposes rather than capital losses) and if the proceeds from an earlier gain are invested capital gains tax deferral.

KEY POINTS

INCOME TAX RELIEF

• The investment has to be made in a qualifying company, has to be in cash for shares or through an EIS fund and the investment must be a full risk investment with no preferential rights to dividends, assets in the event of winding up and no other preferential treatments attached to the shares
• There must be a minimum investment of £500 in any one company in any one year
• Tax relief is 20% of the cost of the shares up to a maximum cost of £500,000 which caps the relief available at £100,000 of income tax
• Relief is only available if there is relevant taxable income to offset it against
• Dividend income does not qualify because of the non recoverable dividend tax credit
• The claim for relief can be partially carried back into the prior tax year subject to a different maximum investment limit
• The shares must be held for three years from subscription or from the commencement of the qualifying trade, whichever is later
• Income tax relief can only be claimed by an individual who is not “connected” with the company

CAPITAL GAINS TAX EXEMPTION

• Where an individual has received income tax relief for his investment which has not subsequently been withdrawn then the gain on that investment is exempt for CGT
• The exemption only applies if the shares have been held for the qualifying period of three years or more

LOSS RELIEF

• If the shares are subsequently sold for a loss an election can be made for the loss, less any income tax relief already given, to be set off against income of the year of disposal of the year prior to that rather than to be treated as a capital loss

CAPITAL GAINS TAX DEFERRAL

• The tax payable on any taxable gain can be deferred if it is invested in shares in an EIS qualifying company
• The investment must be made no earlier than one year before the gain arose and no later than three years after
• There are no minimum or maximum amounts for deferral
• It does not matter for this part of the legislation if the investor is a “connected” person
• There is no minimum period of investment for this relief to apply

Building these provisions into your pitch may very well tip the balance to a potential investor looking to maximise his return of capital.  The Government run Small Company Enterprise Centre can offer advice as can the non Government Enterprise Investment Scheme Association (EISA).  I’ve also made a successful application under EIS on behalf of my own clients so if you want to discuss it with me drop me a line.  I’m happy to help.

This is just so funny

A view by Martin Wood, senior analyst at Financial Express Research

It has been the case so far that many potential investee businesses have been preferring to ‘wait and see’ what happens with the economy, rather than accept lower prices in a deteriorating climate. But many small company owners will have to face facts as their traditional sources of funding become harder to access, and will need to turn to VCTs for investment. Against this background, investment opportunities are plentiful, and declining net asset values for existing funds in the near term mean that there are many worthwhile investments in the AIM sector particularly.

After a difficult year, and despite the gathering economic storm clouds, some VCTs continued to deliver strong performance in 2008. In its report, the AIC quotes Mark Wignall, chief executive at Matrix Private Equity Partners: “The VCT sector shrank in 2008, but the performance of the tried and tested Generalist VCTs held up well and showed resilience. In 2009, Matrix sees the VCT sector shifting further in favour of traditional Generalist VCTs with established track records. The AIM VCT sector will continue to be under great pressure and the new limited life segment will be looking to establish its performance credentials.

The full piece is HERE

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

The Crisis of Credit Visualized is a series of animated shorts that explains the economic crisis by giving it form. It is also an argument for how designers have the unique ability to see a complex situation, then turn around and communicate it to others. By giving graphic form to the credit crisis, it becomes comprehensible. Not only do economic activities take shape, but new relationships can emerge between these shapes.

The Chancellor of the Exchequer has announced that he will deliver his Budget to Parliament at 12.30pm on Wednesday 22nd April 2009.

This one should be interesting!

This interview on CNN’s money program gets lively with two perma bears arguing about the right course of action.  One interventionist and one free marketeer.  Note the reference ‘what we need is another war’!

Public debt has risen to £650bn, 44.2% of UK gross domestic product. Consumer debt is more than £1.4 trillion.

BBC

‘New’ Labour my arse.  This is Labour of old wreaking havoc and decimating our country