Publications from the Office for Tax Simplification ("OTS") often lead to changes in UK tax law, so the "Business Lifecycle Report" merits close study. The Report looks at key events in the lifecycle of a business and considers the 'complex patchwork' of tax charges and reliefs that occur at different stages in a business's life. 

The Report identifies a number of reliefs available to shareholders – EIS, SEIS, VCT, Investor's Relief and Entrepreneur's Relief – and assesses the extent to which they are targeted and their respective costs. Notably, Entrepreneur's Relief cost £4.2 billion in 2015/2016, with the Report concluding that its place and its purpose warrants "a closer look". The Report also considers the effectiveness of certain reliefs, identifying that founders and their advisers may be more familiar with the EIS regime than the VCT regime. It notes that the constraints imposed by EIS and SEIS often cause investors to lose reliefs and companies to lose necessary venture capital, suggesting a review of the complexities surrounding these reliefs.

The Report also identifies anomalies: for instance why additional sale proceeds received by sellers of a business and calculated by reference to future performance (e.g. earn outs) can be treated less favourably than proceeds received by sellers on completion. Another example from the report is the different threshold for CGT (20%) and for inheritance tax (50%) when determining whether non-trading activities may prejudice relief. This anomaly often means investors and their advisers have to devise complex structures to access these reliefs.

So at a time when the Chancellor may be looking around for tax raising measures to fund increased NHS expenditure, it is timely that the Report identifies the need for an overhaul of business tax reliefs. The OTS comments that "This is a time when the need to encourage innovation, support growing businesses, the economy and employment in the UK is a vital priority. It has never been so important that the business tax system is fit for this purpose and supports these aims".

We have already seen changes to the tax system, particularly following the Patient Capital Review, including increased reliefs for "Knowledge Intensive" businesses and the proposal for EIS relief targeted on investors who fund investments in this kind of company. Increasingly, businesses and investors need to anticipate likely tax changes, to ensure that businesses and investors can continue to access the tax benefits available to them as the business grows.  

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