Will the CIF drive UK innovation investment?

Will the CIF drive UK innovation investment?

In January 2013, the UK BioIndustry Association released a report on its proposed Citizens Innovation Fund (CIF) entitled ‘The case for unlocking the patriotic potential of the public’. Although the title sounds like no more than an attempt to buy into the patriotic zeitgeist flowing after a year which included the Queen’s Golden Jubilee and the London Olympic Games, the ideas it contains are based on well-considered and measurable past results.

The CIF would allow individuals to invest up to £15,000 annually, receiving a 40% tax deduction on the amount invested. The investment would be for a minimum of five years and any capital gain made would be tax free on exit. It is interesting to note, that in 2009-10, 40% of Individual Savings Account (ISA) subscribers invested the full amount allowed, indicating that the British public would (if possible) invest yet more in tax mitigating investments.

This all sounds enticing, but would it work and will it happen?

Despite the patriotic wrapping, the CIF is actually based on an existing French scheme – the FCPI. This French scheme began in 1997 and has been lauded as a success. By the end of 2011, it raised over €6billion in investment in over 300 funds covering over 1,150 companies.

The UK government certainly has the desire to promote technological innovation, as demonstrated by the continued increases to the scale and scope of reliefs provided by Research and Development (R&D) Tax Credits.

So, how would the CIF stack up alongside R&D tax credits?

There are two main points to consider
• Firstly, the CIF is an investment mechanism to enable businesses to start projects which may otherwise have stalled due to funding issues. By contrast, R&D tax credits are based on past investment in Research and Development, and as such, may not provide the relief at the time of that crucial springboard moment when a project first begins (which is where the CIF is targeted).

• Secondly, as the CIF is an investment and not a relief, it lacks the subjectivity risk that differing opinions as to the achievement of qualification criteria can cause for those relying on retrospective R&D credits.

Despite the strengths of the CIF, its future is by no means clear: The Chancellor, George Osbourne, announced in December that there will be consultation into the possibility to extend ISA investment to include shares in AIM listed companies and the BIA are pushing for the CIF to be considered within this consultation.

Written by Chris Gent.

Acknowledgements

  1. Citizens’ Innovation Funds – The case for unlocking the patriotic potential of the public by The UK BioIndustry Association
  2. Data on ISA subscriptions from YouGov Plc
  3. Data on FCPI from Association Francaise Des Investisseurs Pour La Croissance

Sources

  1. http://www.bioindustry.org/policy-and-regulation/citizens-innovation-funds/
  2. http://blog.bioindustry.org/2013/01/30/building-the-coalition-for-citizens-innovation-funds/

 

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Chris Gent
Partner at Wilder Coe
Chris provides clear, tailored advice to each client on the preparation and completion of statutory accounts, corporate tax compliance and matters relating to corporate finance. As a trusted advisor and consultant to owner-managed businesses, his expertise and insight into the running of small and medium-sized businesses is highly valued.