Recent headlines reporting the sale of online networking site Bebo for around £290M show just how profitable a good idea can be. Inventing and entrepreneurialism in general has become ingrained in popular culture in recent years thanks largely to TV shows such as Dragons Den. The resurgence in entrepreneurialism is particularly evident in Liverpool thanks to the growth of organisations providing support and advice to budding entrepreneurs and inventors.
However, the fact remains that the vast majority of ideas never get off the drawing board. There are two hurdles facing an entrepreneur/inventor, and both can only be overcome by securing funding, and usually a lot of it. The first problem is getting a good idea on paper off the drawing board to produce a working prototype. The second is to obtain legal protection for the idea whether that be a patent or registered design right. Neither come cheap.
There is, however a growing trend of new diverse funding sources which are available such as the Sunday Times Entrepreneur Challenge 2008 and Dragons Den type programmes which offer an alternative to the more mainstream option of receiving funding from an investment company. This is a welcome and, to some extent, vital life-line in light of the global slow down of credit lending.
But it is in Liverpool that the growth of alternative funding options is probable ahead of most regions in the UK. The Merseyside Investment Seed Fund has a pot of EU investment capital available on a short-term basis for the development of businesses based in the Northwest. Other organisations such as Liverpool Ventures and Liverpool Chamber of Commerce provide further help and advice to entrepreneurs looking to securing funding for their world changing ideas.
Another valuable source of information and advice available in Liverpool is the monthly Inventors Club meeting co-hosted by Kirwans. The Inventors Club is an initiative based in the north of England growing steadily in popularity and interest. It provides expert speakers and general advice and information on all areas of Intellectual Property including legal expertise on how best to protect an idea from infringement and advice on starting a venture for entrepreneurs looking to take their idea to the next level.
Often, funding is not forthcoming from the traditional sources such as investment companies, local government agencies, business angels or dragons and it then falls on the inventor/entrepreneur to decide whether to pursue and finance the project themselves. The most common method for those who take the plunge of perusing an idea is to set up a limited company.
This brings us to the Government’s latest draft legislation designed to encourage a new generation of Sir Alan’s. The Entrepreneurs’ Relief Draft Legislation was announced by the Chancellor Alistair Darling, on 24th January 2008, in response to mounting pressure on the Government, from the business community, for greater support to be given to entrepreneurs by the provision of ‘generous’ tax relief for entrepreneurs who set up a new company including ventures set up for the purpose of developing Intellectual Property.
Most of the following information on the new law comes courtesy of DSG’s Business Owners’ Meeting presentation, which I attended a few weeks ago. It was a very informative talk and managed to do what I believed should be impossible, making tax interesting at 8 o’clock in the morning!
These changes will take effect from next week (6th April 2008) and will provide relief to entrepreneurs in respect of Capital Gain Tax (CGT).
The main provisions of the draft legislation are as follows: -
• The abolition of Indexation Relief and Taper Relief and new flat rate of 18% for CGT;
• The first £1M of CGT gains qualifying for relief with be charged at an effective rate of 10% and thereafter at the new rate of 18%;
• Relief may be available on gains following the disposal of: whole or part of a trading business (which includes professions); assets or associated assets used in a business that has ceased; shares in a trading company (provided the seller owns 5% of voting rights and is an employee or officer) and certain disposals by trustees of business assets;
• No minimum age limit on eligibility, unlike the old Retirement Relief; and
• Relief will be available, where applicable, for a period of one year ending with the disposal.
On the face of it the legislation gives fairly generous relief to help boost the economy and regenerate city areas. However, the abolishment of Indexation and Taper Relief and the replacement of Business Relief with Energy Saving Capital Allowances will in practice offset most of the benefits available under the new Entrepreneurs Relief. Indeed, Richard Lambert, Director General of the CBI believes even the smallest business owner will in fact be worse off.
Nevertheless, such criticism is perhaps a little broad and is more applicable to the business powerhouses of the UK, for inventors and budding entrepreneurs an 8% reduction in CGT to pay on the first £1M received from the sale of their business or assets (prototypes and designs etc) used therein represents a real benefit and incentive to set up a business to develop an invention.
Philip Gray
at Kirwans Solicitors