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Business Incentives – Autumn Budget 2021 Predictions

Oct 21, 2021

At Herrington Carmichael, we regularly advise entrepreneurs and SME owner managers. At Budget-time, there are almost always rumours surrounding how the Government will boost investment into SMEs or provide incentives to businesses. So, what has the Chancellor got planned this time?

Employee Incentives – EMI Schemes

Following the pandemic, UK businesses have been raising wages more rapidly to overcome difficulties in staff retention and attraction. A way to counteract this wage inflation could be by enhancing government-backed share incentive schemes, which would encourage businesses to offer equity to employees rather than increasing cash salaries.

The most popular government-backed scheme is the Enterprise Management Incentives (“EMI”) scheme. In the March 2021 Budget, a review of EMIs was announced. A Call for Evidence was published asking businesses to provide feedback on the EMI scheme, the main aims of which were:

  • To assess whether current Enterprise Management Incentives schemes have achieved their objective of supporting SMEs to recruit and retain employees; and
  • Whether and how the Government should expand the Enterprise Management Incentives scheme to support high growth companies.

Key feedback we have seen from SMEs on how they would better benefit from incentive schemes include:

  • Increasing financial limits – these are currently £250,000 per employee and £3m total value of shares under an EMI scheme (and have not changed since 2001!)
  • Increasing employee limit – currently limited to 250 employees
  • Relaxing independence criteria – currently relatives of people with >30% interest in the company do not qualify, which prevents many family owned businesses from using EMI schemes

Submissions were closed on 26 May 2021. No feedback has yet been released by the Government and it is possible that changes may be included within the Autumn Budget. Watch this space!

Investment Incentives – SEIS and EIS

Recovery from the Covid-19 pandemic will undoubtedly be top of the Chancellor’s list. A potential area of focus to help new business may be by boosting investment into SMEs.

There is talk around this taking the form of enhancing tax reliefs available for investors who invest into start-ups through the Seed Enterprise Investment Scheme (“SEIS”) and Enterprise Investment Scheme (“EIS”). Currently the schemes work as follows and there is potential for the limits and tax breaks to be increased:

  • SEIS – applies to companies who have traded for less than 2 years, with gross assets of less than £200,000 and fewer than 25 employees. Individual investors can invest up to £100,000 per tax year and receive 50% income tax relief.
  • EIS – applies to companies who have traded for up to 7 years, with gross assets of less than £16m and fewer than 250 employees. Individual investors can invest up to £1m per tax year and receive 30% income tax relief.

Tax Incentives

It is widely expected that the Chancellor will introduce further tax incentives to incentivise businesses, following the capital allowances “super deduction” announced in the Spring Budget. Speculation surrounds the following potential areas:

  • UK Research and Development (R&D) tax relief – in the March 2021 Budget, the Government launched a consultation with UK businesses into the future of R&D tax incentives. Enhancements may be made to the relief as a result of the consultation.
  • Climate – with the COP26 climate change conference around the corner and the Government’s “net zero” pledge, it is anticipated that climate change will be a big focus. We could see an increase in tax incentives for businesses to encourage the creation of green jobs, zero emission vehicle fleets or green capital investments.

The Corporate & Commercial team will be watching the Autumn Budget live on 27 October – connect with us on LinkedIn to follow along with our updates.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

Emma Roper

Emma Roper

Solicitor, Corporate and Commercial

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