Legislative changes brought in by HMRC to comply with EU State Aid rules have reduced a source of start-up funding by £230m.
Norman Molyneux, chairman of InvestingZone, the North West-headquartered online investment platform, is calling for HMRC to scrap these restrictions now that Brexit negotiations are underway…
Tax reforms affecting the venture capital funding sector were introduced in 2015 to comply with European Union rules on State Aid-funding, limiting and restricting businesses’ eligibility for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme.
The impact of the changes, which include a seven year rule on eligibility, are already starting to be felt.
Data released in April 2017 by HMRC for2015-16 showed a £230m plunge in EIS funding to £1.65bn and an £8m fall in SEIS funding to £169m.
Since the Enterprise Investment Scheme (EIS) was launched in 1993-94, almost 22,900 individual companies have received investment and more than £12.2bn of funds have been raised.
HMRC should look to reverse the 2015 measure as soon as possible following Brexit as they are proving to be a barrier to growth.
EIS and to a lesser degree SEIS, is a proven vehicle of small business funding. It is a really important tool and we shouldn’t forget that in 2015-16 nearly £1.6bn was raised – the second highest total ever. This is vitally important money being used to create jobs and innovate.
The 2015 changes were largely introduced to comply with EU rules on State Aid-funding, and with the UK voting to leave Europe, there is a fantastic opportunity for HMRC to take positive and early action to support the small business and venture capital communities by reversing the 2015 changes.
Trade body The EIS Association is also lobbying hard to the changes to be scrapped, and has branded the, “harmful to the UK’s business and enterprise sector, and therefore to the economy as a whole”.
InvestingZone and its group companies Acceleris Capital and Seneca Partners had deployed more than £100m through EIS and SEIS, which had helped create an estimated 1,000 jobs at around 60 companies in the North, including Manchester based Metronet UK.
To be successful in creating a strong economy, with sustainable high-quality jobs, we need to complement the large tranches of public money with dynamic private sector investment.
In exchange for the tax incentives that offset some of the risk for EIS and SEIS investors, the 1,000 jobs we have helped to create represents an excellent long-term return for HMRC.
We think the value of EIS and SEIS to the UK is under-reported and too often overlooked.
With the right support I believe EIS investment will continue to thrive over the coming years, enhanced by the very welcome Northern Powerhouse Fund, and greater awareness of alternative investments in the private capital space.
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A qualified chartered management account, Norman has had a rich career in profesisonal services with PWC alongside numerous years in industry across North-America and the UK. Since 2000, Norman has been at the forefront of advising and fundraising for UK SMEs, founding corporate finance boutique Acceleris Capital Limited. Acceleris have introduced over £100m into UK SMEs across over 100 transactions with direct experience of taking companies from startup through to exit. Norman is a director of Acceleris Capital, Seneca Partners and since 2015 has taken a directorship and acts as chairman for InvestingZone.