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UK small companies getting tax break

Chancellor George Osborne has been given clearance by the European Commission to expand the Enterprise Investment Scheme (EIS) by increasing the tax breaks available to companies that qualify. The expansion has been valued at £100 million ($155 million).The Treasury this week stated that high growth companies have created over 54% of all jobs in companies with more than 10 members of staff. The new measures are planned for implementation in April 2012 as the government seeks to spark life into the economy and support private sector growth.

The proposition will see the tax relief available increased from 20% to 30% and individuals will be able to benefit from the relief in respect of £1 million ($1.5 million) of investment, up from £500,000.

During the recession, the EIS raised more than £500 million in investment for qualifying companies. Increasing the tax relief available for both businesses and individual investors may ensure that businesses attract investment despite persisting economic difficulty.

Guidance on the EIS makes clear that small and medium sized private businesses are the intended beneficiaries of the scheme. The Bank of England’s quarterly publication on lending trends showed that lending to business contracted in the first quarter of 2011.

As such, Osborne’s decision to expand the EIS shows the government is keen to ensure that small and medium businesses are not starved of capital as a result of difficulties in financial markets.

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