What could be in the cards for small business this Autumn?
The new Chancellor Philip Hammond almost certainly owes his appointment to being a “steady pair of hands” who will steady the ship in the coming months and provide much needed reassurance to the UK’s post-Brexit economy. No sudden movements like an emergency post-Brexit Budget then. Next stop the Autumn Statement, around 4 months from now. As reported by Robert Walsh of Q Ventures in CityAM last week, No 11’s latest resident is busy pouring oil on troubled waters and sending out signals of reassurance to the City and the wider business community. FTSE seems relatively unperturbed, and the lower pound is delivering a boost to exporters and the UK Leisure and Tourism sector, so it’s not all doom and gloom.
It’s fascinating to speculate what is going through our new Chancellor’s mind and what might be the shape of the Autumn budget – a boost to the enterprise economy may well be high up the list. As a veteran of the tax-efficient investment market, having been in the industry for 30 years, and founder and director of the EIS Association, I would say a boost to the incentives for investing in small businesses could well be on the cards. The EIS and the SEIS are the obvious vehicles for doing this, particularly following the fairly radical reforms they underwent a year ago, which are having the effect of focussing investment on younger businesses and genuine trades, as opposed to artificial structures, or the so-called early exit and capital preservation schemes. Also, EIS/SEIS are becoming increasingly popular. According to Growthdeck, 66% of all crowdfunding investment opportunities qualify for EIS and 39% for SEIS.
Ways the schemes could be boosted include increasing the level of up-front tax relief, say from 30% to 40% for the EIS. Or increasing the limits an individual can invest in any year, say from £1m to £1.25m in the case of the EIS, or from £100,000 to say £200,000 in the case of the SEIS. Or enhancing the CGT relief in the SEIS, by bringing it back to a 100% write-off rather than the 50% write-off it now offers.
The EIS and SEIS must continue to demonstrate that they pay their way, so HMRC will doubtless continue to cry out for case studies and factual evidence that the schemes are working. First and foremost, they provide employment and that in turn increases the revenue from income tax. Small businesses mostly also pay VAT, and once they’re into profit, corporation tax. So in a perfect scenario, the money comes back to the Revenue by a factor of more than 1 in relatively short order.
We recently provided £7m (over two years) of EIS funding for a Leisure sector start-up. The business has taken off and is now turning over £10m a year and making profits of £1.5m. So it pays corporation tax, it pays VAT and finally, it employs close to 200 people, all of whom pay income tax. A quick back of the envelope calculation would suggest the business generates taxes of around £3.5m a year. So, for an “investment” of £2.1m (30% x £7m) HMRC is picking up a return of £3.5m a year and is into major long-term profit. Definitely one for the case book.
The Chancellor has a golden opportunity this Autumn of giving small business not just a signal of reassurance but a positive shot in the arm.