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Small firms should be encouraged to raise funds on capital markets

February 15, 2013

A report by think tank, CentreForum, suggests that the Government could help narrow the massive funding gap faced by the UK’s SMEs by encouraging high growth firms to access equity finance on the capital markets.

The organisation says that small companies face a finding gap of almost £60bn – and this could be significantly reduced if qualifying firms were able to offer shares publicly in return for the capital they need to grow. Currently debt finance is a more tax efficient way of raising capital.

Some of the think tank’s proposals include:

  • The abolition of stamp duty on share transactions – or just those relating to growth firms.
  • Allow individuals to include high growth small companies in stocks and shares ISAs (for example, shares traded on the AIM). The Government pledged to consult on this proposal in the 2012 Autumn Statement.
  • Treat equity finance more favourably from a tax point of view, in line with other types of investment, by reducing the CGT payable on shares.
  • Remove the current requirement for shareholders to hold at least 5% in a qualifying company to claim entrepreneurs relief on any future gains.
  • Encourage small, high growth UK companies in general.
  • Raise awareness of how equity finance may benefit small companies, and invite key stakeholders to visit such firms.
  • Require the FSA to “encourage the dissemination of research on SMEs”.

Tom Papworth, co-author of the report said:

“Equity markets offer a huge opportunity to unlock a vast amount of growth capital. This will enable innovative and dynamic British firms to grow at a rapid rate, while making the UK the international marketplace for fast growing companies and ambitious entrepreneurs.”

You can download the report here (PDF).