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PKF's CGT advice to Chancellor

A leading East Anglian tax expert claims the Chancellor has a golden opportunity to boost entrepreneurship and investment by extending existing tax breaks to smooth the furore over his capital gains tax (CGT) reforms.

Peter Harrup, partner at PKF Accountants & business advisers in Ipswich, says Alistair Darling could extend the Enterprise Investment Scheme (EIS) from next April to find favour with small businesses.

He said: "Mr Darling said that he wants a simplified tax system and to reward investment. By extending the EIS, so that owners of start-up businesses can qualify for the CGT relief as well as investors, he would send a clear signal that he is serious about both.

"The EIS limits would exclude large businesses but this change would help to restore his credibility as a supporter of small businesses without triggering an immediate tax cost to the Treasury.

"The current EIS rules are illogical as anyone who owns more than 30 per cent of a company or is actively involved in its management is denied relief from CGT while passive investors do not pay tax on EIS share gains.

"If he extends this CGT relief to owner-managers, the incentive for entrepreneurs to launch and develop their own businesses will be very attractive. It is during the early stages of a business life-cycle that businesses need the most help and this move would be applauded by the small business community.

"The Chancellor could also quell the unrest in the business community by introducing a two-year transitional period for taper relief for those business owners who had invested before the Pre-Budget Report.

"This would only be fair to business owners and would alleviate the need for the forced sale of many businesses before April next year. As we stand now, prospective buyers know they have the seller over a barrel. Taper relief would still be removed from the tax system by 2010 but the Chancellor would uphold the tax promise made by his predecessor.

"When he announces the final shape of the new CGT regime in the next three weeks, the Chancellor has the opportunity to rebuild some of the business confidence that has been so badly eroded by his Pre-Budget Report. I hope he is really listening to what the business community is saying and will act to restore some certainty to business planning."

Article by BDO LLP

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