The Tory manifesto published at the end of last week makes fascinating reading
“We will help innovators and start-ups, by encouraging early stage investment and considering further incentives under our world leading Enterprise Investment Scheme and Seed Enterprise Investment Scheme”
This is encouraging and very re-assuring. It is clear evidence that our (almost certain!) future government takes support for the Enterprise Economy very seriously. We spend a lot of time watching the signals coming out of government, listening to rumour and lobbying HMRC and HM Treasury for better understanding of the EIS and the issues involved, so statements of this nature are very helpful.
It is also the first time I can recall an official document referring to the EIS as “world leading”. Over the years, other European countries have had similar schemes, but none of them seem to have lasted as long or to have been admired as much as the EIS.
The positive Tory comment comes in the context of helping digital businesses at every stage of their growth. There is also the suggestion that the Government is considering “further incentives”. Could this be levels of tax relief over and above the current ones?
Those of us who have been in the industry many years (in my case, pushing 30 years!) can remember the different stages in the history of the tax-efficient sector. I well remember the end of the BES in 1993 and the beginning of the EIS in 1994, the key thing being that the initial income tax relief went down from 40% to 20%. Many people abandoned ship, claiming that 20% was not a high enough incentive to make the EIS effective. Throughout the 90s we lobbied hard for higher tax relief. We eventually persuaded HMRC that higher relief would bring substantially higher levels of investment. They first applied it to VCTs, raising the relief from 20% to 40% for a 2 year period in 2004-2006. This caused a spike in investment still visible from an examination of historic funding levels. Then they finally raised EIS to 30% and brought the relief for VCTs and EISs in line. So, 20% is too low and 40% too high (except for small start-ups).
But, 30% is about right – so don’t tinker with it!
We will presumably now have to wait until the Budget in November before we learn the outcome. And if there are changes, will they be introduced overnight, or introduced with effect from 6 April 2018? If the latter, we could experience a temporary dip in demand which it would be best to avoid.
To learn more about the EIS, join our upcoming webinar (Wednesday 24th May, 2pm) on using the Carry Back facility within the EIS/SEIS. To register: http://www.enterprise-ip.com/events
Martin Sherwood, Partner
Martin Sherwood has many years’ experience of small company fundraising and in particular the tax-efficient investment market, specialising in the Hospitality & Leisure Sectors. He is currently chairman of the four British Country Inns companies and of Halcyon Hotels and Resorts plc, which is in joint venture with Luxury Family Hotels, which he helped launch 20 years ago. Previously, he was founder and head of Tax Efficient Solutions, first at Teather & Greenwood (1997-2004) and subsequently at Smith & Williamson (2004-2010), which he left to found Enterprise.
Martin has been closely involved in both Venture Capital Trusts and Enterprise Investment Schemes (EIS) since their inception, and is a founder director of the EIS Association, the official trade association of the EIS industry.
Martin works very closely with a wide range of Hospitality & Leisure entrepreneurs and has a significant network of investors and professional contacts as well as being a serial investor in his own right.