Several Growing Business Young Guns are among the 94 entrepreneurs who have signed a letter to the chancellor voicing their concerns over plans to increase the rate of capital gains tax (CGT).
The signatories, all members of entrepreneurial membership organisation The Supper Club, have urged the government to ensure that the plans do not punish those most likely to drive the economic recovery, as well as offering a proposal for how this could be avoided.
“Our belief is that any blanket increase to the rate of CGT will penalise those most likely to facilitate a recovery: the entrepreneurs (and their investors) behind our fast growing businesses, the only likely source of new job creation in view of public sector cutbacks,” the letter said.
The Conservative-Lib Dem coalition government has already confirmed its intentions to bring CGT rates for ‘non-business assets’ in line with income tax levels to tackle the deficit (a key component of the Lib Dem election manifesto), which could see the current rate of 18% increased to 40% or even 50%.
Although the government has promised ‘generous exemptions for entrepreneurial business activities’, it has faced criticism for failing to expand on what will and will not qualify for these concessions.
Last month, Jos White, co-founder of email security business Message Labs and a partner at investment and advisory firm Notion Capital, called the lack of clarification over what will be defined as a business asset “very worrying”.
“There is a threat that venture capital will be punished for investing in and encouraging growth in small and medium businesses, which are the cornerstone of any economy,” he said.
Accountancy firm Ernst & Young also warned that this uncertainty could prompt those currently looking to sell to rush through the process, and could even trigger a ‘flurry of corporate disposals’.
As well as discouraging investment in growing businesses and threatening future job and wealth creation, the letter argues that a CGT hike could even be counter-productive to the Treasury, by prompting entrepreneurs (who already generate significant revenue for the government through corporation tax, income tax and national insurance) and the investors that support them to move overseas.
“Evidence suggests that any such increase is unlikely to provide additional tax revenues anyway,” it argues.
The letter calls for a taper relief system, similar to the one abolished by Labour in April 2008, to encourage long-term investment in growing businesses.
“It is our belief that any increase in the headline rate of CGT be accompanied by the introduction of a taper relief reducing the CGT burden by 10% for each year an asset is held to a zero rate. [This] will both simplify CGT overall and encourage long term investment,” it says.
Among the letter’s signatories are former Young Guns Susanna Simpson, founder of Limelight PR, Graham Bosher, founder of healthy snack delivery service Graze.com, Andrew Long, co-founder of concierge service Ten Lifestyle Management, Jonathan Quin, co-founder of currency exchange broker World First, Nick Claxson, founder of IT firm Comtec and James Merrett, co-founder of bespoke travel company Black Tomato.
“We are not a lobbying organisation. Capital gains tax and taper relief are the only issues we have ever lobbied on,” said Duncan Cheatle, founder of The Supper Club.
“We are a club for CEOs and the founders of fast growing, innovative businesses. Our members have a combined turnover of over £4bn and represent the kind of businesses likely to create new jobs and drive the UK's economic recovery.
“We had almost a quarter of our members respond and sign up within three hours of emailing them on a Friday afternoon; an unprecedented response from a phenomenally busy group of entrepreneurs.”
The government is expected to confirm its CGT policy in the emergency Budget on 22 June 2010.
© Crimson Business Ltd. 2010