Experts suggest the Government will look to boost VCTs and EIS in the Budget as part of a package of support for small businesses although new restrictions are also on the radar.
The Government is under pressure to increase small firm lending after the Bank of England reported a fall in net lending since the launch of the Funding for Lending scheme in August.
Labour has also published a paper urging policymakers to boost VCTs and EIS to help small businesses.
Cicero Consulting director and chief corporate counsel Iain Anderson says: “I think we are going to see a Budget which focuses on small and medium sized businesses but will have support for early stage investment. However, I expect eligibility criteria to be tightened.”
Technical Connection joint managing director John Woolley says: “I expect the Government will try to tighten up VCT and EIS rules to make sure they only apply to true trading companies.
“When people make an investment through a VCT or EIS, the Government wants there to be an element of speculation rather than making an investment where there is a guaranteed return.”
Yellowtail Financial Planning managing director Dennis Hall says: “The Government needs to clamp down on this. VCTs and EISs should really be investing in the equity of start-up companies.
“But some investment funds are using the rules to effectively invest in company debt, so you get very low volatility and very low risk. So the returns are just capturing the tax relief and there is no real risk being taken.
“That is going against the spirit of the schemes and ultimately it is the taxpayer that is underwriting investments for fund managers.”