How tax-efficient investment could kick-start the UK economy
The government’s £500m Future Fund is under review as many call for the scheme to be expanded to include private investors making use of the Enterprise Investment Scheme (EIS). The fund currently allows investors to back startups that have received over £250,000 of funding previously, and the business to benefit from matched funding from the government.
The Future Fund, however, does not currently allow investors utilising the tax-efficient EIS to use the scheme. Many private investors utilise the EIS to back small businesses that otherwise would not have access to funding. The scheme facilitates investment for small businesses in the UK from private investors by offering government-backed tax efficiencies on their investment. The EIS currently provides around £2bn of funding a year to growing firms and has provided over £20bn in its 25 year history.
Luke Davis – CEO of IW Capital, a specialist in EIS investment – discusses the scheme:
“The EIS is one of the UK government’s most successful initiatives in terms of driving investment into high-growth early-stage companies. It has helped produce some incredible business successes that otherwise may not have got off the ground due to the reluctance of banks to lend to these firms. While confidence in investing has undoubtedly reduced, there are still some fantastic opportunities to invest and support the growth of British firms that are expanding and hiring – especially in the MedTech and Pharma arenas.
Extending the Future Fund to include EIS investments will open up the scheme to a whole new sector of investors and private capital; from angel investors to VCTs. This is not an insignificant amount of money that could be a big boost to companies trying to survive or grow.
When the EIS income tax relief was extended from 20% to 30% in 2011, the amount invested in small companies through the scheme saw a tremendous jump. If the government were to extend the scope or tax efficiencies of the scheme again, it could really help catalyse private investment – a crucial source of growth finance. While any increase in tax reliefs would impact the revenue of the treasury, this would very likely be more than balanced by increased taxes on business revenues and those on new employees – as we have seen previously with the scheme.”
