Dragons’ Den investor James Caan is set to pitch business secretary Vince Cable with an idea to increase ‘friends and family’ investment in start-up firms.
In an exclusive interview with Startups.co.uk’s sister publication Growing Business, Caan floated his idea ahead of his planned summit with the new head of the government’s Business, Innovation and Skills (BIS) department.
Revealing his wish for the government to introduce a twist on Gift Aid, the popular tax break used by charities to boost donations, Caan said it’s not too late for the government to do more for early-stage companies, despite the recent emergency Budget:
“The only area I would have liked to have seen a contribution was where the entrepreneurial market typically goes in this country when it wants to start a business and needs funding: friends and family.”
He added: “There should be an opportunity here where we should provide something like we do for charity. If you and I give money to a charity, we can reclaim tax relief back and the charity receiving it would reclaim tax. My question is: why wouldn’t we do that for entrepreneurs, especially in a high-rate tax environment?”
Caan pointed to the punctured public sector and debt-laden corporate sector as critical factors for the government focusing on small and mid-sized firms for growth.
And he cited the lack of a venture capital community in the UK and the unwillingness of banks to lend to ambitious companies as compelling reasons for Cable to consider introducing his proposal. “To create an environment where angel investing becomes vibrant, attractive and worthwhile I think the government could do a lot. What’s the downside?”
Describing how the ‘Investors’ Relief’ idea would work in practice, he said: “Let’s say I make £150,000 a year, you come along and want £50,000. I put that in, but I’ve paid 50% tax on that. You can claim back, so between us we can claim back £25,000.
“At the point either one of us puts in a claim for that, the government gives you credit but says to me, the investor and now a shareholder, that at the point of claiming that we’d like an undertaking that the moment you make back that money we would like that returned.”
Caan added that instead of becoming a credit burden for the economy, businesses would in fact become income generators for the government. “I’m saying [to the government], if the businesses take off, they will employ people and by employing people you will receive tax revenues, the business will make a profit and you’ll get corporation tax, and you’re now creating hundreds of businesses which become your income devices.”
The full interview with James Caan will appears in the July/August issue of Growing Business magazine.