Do tax incentives work?

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The pressure to abolish tax reliefs expolited by private equity are rising. Rightly so. But as Vanessa Houlder points out in the FT today, the loopholes it exploits are designed for smaller, genuinely entrepreneurial business. But as she notes:

Tax simply does not come into the thinking of most entrepreneurs, according to Rebecca Harding of London Business School. "There are some fantastic measures out there for setting up a business, but unless people have a really good accountant they don't understand what the benefits are."

The challenge is simple, but significant. Tax incentives that only work for small businesses are needed.

If I might be bold, the solution is simple, but bold. It is to create a class of company that can only be used by smaller enterprises and unquoted start ups. These could then be given tax relief quite unrelated to private equity activity. Anything to do with financial services would, of course, be excluded. And we could then have tax rules for these entities unrelated to those companies of a certain size. we might even have different accounting rules for them. Now that would be a bonus.

We could call them LLPs, of course, but that might be going too far. πŸ™‚