The Autumn Statement: George Osborne Indicates That SMEs And Peer-To-Peer Platforms Are Key In Britain's Economic Recovery
4th December 2014
Today George Osborne unveiled his autumn statement for 2014. Overall, the news was generally positive for both the UK’s business community and the alternative finance industry.
The Government sent out clear signs of encouragement for crowdfunding platforms by making SEIS/EIS administration easier, allowing investors on peer-to-peer platforms to receive bad debt relief and naming the banks who will be required to refer SME’s to alternative finance providers.
Highlights for SME businesses included cutting a number of taxes, an extension of the Funding For Lending Scheme, and the introduction of a new “Google tax” for large multi-national corporations who avoid tax through moving their profits offshore.
Our key points from the statement are as follows:
Protection For Peer-To-Peer Investors
Osborne showed encouragement for alternative investment platforms by announcing that peer-to-peer investors on lending websites will be able to offset losses against the interest income they receive. In practice this will allow investors to net off the total income they receive from debt based investments, against the companies in their portfolio which default on their interest payments. This will come into effect from April 2015, and means that investors will be able to make a claim for relief on these losses on their self-assessment tax returns for the tax year ending 5 April 2016. This will particularly benefit higher-rate tax payers who will result in higher tax-savings than those paying at the standard 20% rate.
We view this as being fair to retail-investors. Indeed, it affords them the same treatment as banks, which are able to offset their bad debts against their income. In addition, it is likely to increase competition across the marketplace.
Finally, whilst these measures are encouraging, and will no doubt result in increasing amounts of funds being invested into peer-to-peer platforms, we are still awaiting the outcome of the Government’s peer-to-peer ISA consultation. The possibility of individuals being able to hold their peer-to-peer investments within an ISA would mean that they would be shielded from any tax liability for the duration of time they are held within the portfolio. At Crowd2Fund, we are also keen to see the introduction of peer-to-peer ISAs being inclusive of all debt instruments, rather than those which are just conventional debt. As we allow our investors to hold a range of different debt products ( stocking loans, revenue share and bonds), it would be a major step for a real and lasting change in the UK alternative finance policy if the outcome of the proposals were inclusive of all of these.
Digital Administration of SEIS/EIS
From 6 April 2016 investors and companies will be able to administer their SEIS and EIS documentation online. We believe that this will significantly speed up the process for companies being able to receive their Advanced Assurance statement back from HMRC. Currently this takes around five weeks. This tweaking of the process is encouraging for both equity crowdfunding platforms and early stage companies seeking equity finance.
Increased R&D Tax Credits
From the 1st of April 2015, R&D tax rates for SME businesses will increase from 225% to 230% on enhanced qualifying expenses. In addition, large firms will have their rate increased from 10% to 11%. These increases are marginal. However, their raise does indicate that the Government wants to continue to encourage innovation in the UK. These measures are most likely to benefit early stage-businesses, which are not yet generating significant profits and are devoting a large amount of their business expenses to bringing new products and services to market.
Funding For Lending Extension / New Financing For The British Business Bank
The Funding For Lending scheme will be extended by a further year, running to January 2016. This was first introduced in 2012, with its focus predominantly being on lending to small businesses.
Alongside this, the Government is aiming to aid small business growth by providing an extra £900 million in order to help finance new companies. This will be administered by the British Business Bank, and will comprise of £500 million to be lent out by the Enterprise Finance Guarantee scheme, and £400 million to be invested into venture capital fund through Enterprise Capital Funds.
We view these measures as being positive as the Government appears to be listening to the needs of the SME business community, and realizes that supporting them is vital to the rebalancing of the UK economy. The message being communicated is that businesses no longer need to rely on traditional bank lending when seeking finance.
In addition, we believe that these schemes are complimentary to the alternative finance landscape and add to the potential pool of funding options open to businesses.
In response to mass scale tax avoidance from offenders shifting profits offshore, large multinational companies will be required to pay 25% tax on profits generated from activity within the UK. Osborne specifically indicated that this tax would target the “tech sector” and “some of the largest companies in the world.” The Government predicts that this raise £1 billion over the next five years. The tax will be introduced from April 2015.
We are very optimistic about the effects of such a tax because its introduction is likely to result in British companies being on a level playing field with their overseas counterparts, which run domestic operations locally. In particular, this is likely to encourage individuals to create companies within the technology industry, a sector which has been highlighted as a source of significant job creation in the future.
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