THE Government was this morning urged to extend TESSAS, tax exempt

savings accounts, to owners of small businesses to boost investment.

Research had shown that 87% of small firms would plough more of their

profits back into their businesses if the tax system was altered to give

them the advantage currently enjoyed only by personal account holders,

said Barclays Bank.

''It is vital that businesses have the right balance between their own

capital and bank borrowing if they are to avoid the problems of

over-gearing associated with the last recovery,'' said David Lavarack,

Head of Small Business Services at Barclays.

''The introduction of a Business TESSA would give businesses an

incentive to retain profits for long-term capital investment by creating

a tax free savings environment,'' he said.

Mr Lavarack told a small business forum at the Institution of Civil

Engineers that Business TESSAs would operate along the same lines as

personal TESSAs.

''Businesses could invest in a special savings account which would be

tax-deductible over a set period of time (3-5 years). The funds could

then be used for approved purposes, such as capital investment, R&D

(Research and Development) or training and would remain tax free,'' he

said.

''Funds withdrawn earlier or for non-approved purposes would be liable

for tax.''