The 2015/16 budget is taking place on the 16th March, and as usual the rumour mill is in overdrive, with the usual “sources” who are predicting what will be included
Since inception, according to the most recent statistics available from HMRC regarding the Enterprise Investment Scheme (EIS), published in January 2016, over 22,900 individual companies have received investment through the scheme and £12.3bn of funds have been raised. 2013/14 shows a significant increase on 2012/13 on both funds raised and investments made with £1.563bn versus £1.033bn in 2012/13. As a result, many are waiting to hear what changes, if any, will be introduced to the sector on 16 March.
Summer Budget 2015
Following the Summer Budget 2015, a number of changes were implemented to the EIS sector. These changes took effect from 18 November 2015 (the date of Royal Assent) and included the following:
- EIS relief is not available for companies that have been trading more than 7 years (some exceptions apply)
- EIS/VCT will no longer be able to be used to fund an existing company or trade.
Further changes were introduced related to the Renewables sector, with reserve electricity such as STOR becoming an excluded activity as of 30 November 2015 and all energy generation activities becoming excluded from EIS, VCT, SEIS and SITR as of 6 April 2016.
What is next?
There are various changes mooted for the Enterprise Investment Scheme, and these are generally a continuation on a wider revision to the Scheme and the qualifying trades. The essence of EIS has always been around funding early stage companies during their growth cycle and Treasury and HMRC has clearly re-focused things to ensure that the types of companies being funded are in the “spirit” of the legislation.
Here at Enterprise we think that the changes which Treasury has recently implemented will potentially reduce the level of investment into EIS, as clients are looking for what they perceive to be “lower risk” investment opportunities in what is a high risk environment, and the heady days of renewables and particularly solar in many ways appear to be the golden age of the EIS.
Our strategy and philosophy has always been to invest in to trading entities, and we feel that in many ways the changes which we have experienced will play to our favour, as we have carved out significant experience in the Leisure and Hospitality sectors, which as far as we are concerned fit very firmly into the current legislation and the “spirit” of what EIS is all about.
As we approach the budget there have been a number of enquiries from clients regarding making investments prior to the budget in case that there are any changes to EIS rules. EIP maintains a close relationship with the trade body for the EIS Association, with Martin Sherwood Partner at EIP one of the founding Directors, and if there are wholesale changes planned, we normally have an idea that this is taking place, with consultations taking place in previous years. That said there will no doubt a continuation of the revisions previously experienced with a tightening of the legislation expected.
The budget will always have a couple of “curve balls”, but for those operating in the spirit of the legislation, these changes should not be disruptive.