HM Revenue & Customs published new data on venture capital trust investment yesterday.
VCTs are quoted companies that raise money to invest in start-up and early-stage companies. This is supposed to be good for the economy. And because of the supposed risk investors can get tax relief, upfront, on 30% of the cost of their investment. Because of the esoteric nature of the investment, and the five year time commitment, only those already wealthy tend to invest in this way.
Last year (2018/19) £716 million was invested by 18,890 people.
That's £37,903 invested by each person.
In other words, on average each saver invested considerably more than the UK average income.
And they got an average of £11,371 of tax-saving each, which is more than the vast majority of universal credit claimants will get each year. Basic single person universal credit is £3,813 a year.
So, I have a simple question to ask. It is why are these wealthy people so much more worthy of state support than those in real need?
Try as I might I can find no reason at all to subsidise the savings of the already wealthy in this way. VCT relief would be high on my list fo tax reliefs to get rid of.
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What I find even more disgraceful is the constant mantra that tax rates are too high at the top on the basis that they dis-incentivise enterprise and should be reduced. The rate is 45 per cent.
Meanwhile on Universal Credit you incentivise yourself by working extra hours or even by getting a better paying job with the result that the amount you receive from UC is reduced. This rate is 63 per cent.
Why?
Excellent question
It’s to encourage capital to flow into start up and small business – it’s that simple!!
The vast majority of VCTs lose money. So the tax break encourages money way to flow into small companies otherwise none would!!
It’s not like the money would be invested anyway and there is a tax break on top. I don’t know if you believe or suggest this but it’s not the case
I’ve seen VCTs
Sorry – but I see them as a racket, not a serious tool for directing investment
“Sorry — but I see them as a racket, not a serious tool for directing investment”
It may we’ll be a “racket” for the investment manager as fees are eye watering high…I don’t understand why you do t see it as a serious investment proposition? The regulations are so tight on what managers can do they have no choice but to invest in the tiny micro companies who would be otherwise be starved of capital. Most of these companies are not successful of course and go bust so it’s back to my point most investors in VCT funds lose money. Also there is virtually no secondary market in the shares so if you buy at inception you are pretty much in for life. It’s not like you can take the tax break and flip out..As ever there are some winners but more people lose money regardless of the tax break. If they were shut down no one else would invest in many of the businesses VCTs do
Having seen the companies who get funded I was always sure they were the worst – after business angels and many others have overlooked them
This is not the only way to raise funds
I am interested to understand as what you propose as “other ways to raise money” for ultra high risk start ups?
Try angel networks
And actually, many accountants do know people
And then there is venture capital, and not the VCT sort
Angel networks don’t raise enough.. that’s exactly why VCTs need to exist!!
I remain surprised so much money goes in as the probability of a decent return is against you regardless of the tax.
“Having seen the companies who get funded I was always sure they were the worst — after business angels and many others have overlooked them.” It sounds as if they are backing the outsiders!
So if I nip down to the bookies and back the outsider at the next race and bet £37,903 but my horse fails to win the taxman should give me £11,371?
Nah. Not going to happen.
The simple answer is this and it is very simplistic
People on universal credit are seen as a failure, that is why they are on it, even if the get a higher wage via extra hours. UC pennalises them more to compound the so called failure
Start ups are seen as s very good because they moving up and doing something ie creating a business. It does not matter if they fail 100 or 1000 times they will be treated as individual successes even if they fail.
People on UC are seen not as an investment, but as i a de-investment, hence the low rate of benefit given to them. The government wants them off UC as fast as possible. So when the UC claimant gets more hours they lose massively in UC returns. Effectively the government says. I do not give a toss you got more hours, they say get more hours very quick or you will lose more.
This demonetisation has been brought in via the way companies treat their workers, Hence the low wages, rising inequality and wealth. So the manager abuses his workers by the low wage given and the perception they are free loading when no one is looking. Effectively the state and bosses regard their works and claimants as suspect and should be punished accordingly.
The only people who are worth anything are the ones who set up business and after all when he or she makes good they are panacea on everything. Rich business men and women are seen as varsely intelligent and thus are ask questions about quantum physics and life on mars, even though they made their money making cakes or selling shares.
I will add even businesses who pay their worker so badly they need state help . The owners are seeing as a shining example of what is success is. Corporate welfare is good, social welfare is very very bad.
Pitchforks are coming.
Is it any wonder there is so much discontent when you read stuff like this.
Trickle down? My arse. Trickle up – definitely.
They are totally pointless IMO – a simple transfer of public funds to the scheme promoters.
Along with ‘Help to Buy’ – a transfer of public funds to Persimmon et al, who build sh’tty houses, sold to the innocents who then get landed with quasi lease arrangements making their low quality ‘homes’ unsaleable.
Election day rant over…