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Tax blow to high-risk start-ups

Smaller ventures in high-risk industries, which rely on start-up funding from individual investors, are likely to be hit by an immediate change to the tax regime.

Such is the verdict of Peter Penneycard, of accountants PKF, which says the Revenue has declared the end to ‘sideways loss reliefs.’

These are capital contributions made by individuals who are non-active partners in a business.

According to the firm, where the “main purpose of one of the main purposes” of the investment was to access trading losses, tax relief can no longer be claimed on the losses.

The move is expected to be felt the most by the film industry, bio-tech and "green" research businesses, which have been particular beneficiaries of the practice.

"The BBC's Dragon's Den program has shown us all how hard it can be to raise finance for a start-up business,” Mr Penneycard said.

“Loss relief has been a feature of investment partnerships for many years and reduced the initial risk for individual investors - making it easier for businesses operating in high-risk sectors to secure start-up funding.

The “announcement has effectively cut off a ready source of investment capital to such businesses,” he said.

“Many prospective businesses will have to look much harder to find alternative funding. It is going to be particularly difficult for those operating in sectors like biotech or film where returns can be high but the chance of failure is equally great.”

Separately, company owners who want to gain more value out of their business, or come up with an effective exit plan are invited to PKF’s UK-wide seminars.

Further details are available on the firm’s website.

Mar 15, 2007
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