The government is set to review what funds will be allowed in Enterprise Investment Schemes.
In the Spring Statement today, the government says it will publish approved funds guidelines for comment on what investments should be allowed in the scheme designed to channel money to start-up companies, alongside draft legislation.
It is also set to review why another tax relief scheme to support charities and social enterprise has not found expected popularity with investors.
The Social Investment Tax Relief scheme was launched in 2014, and is one of the four tax-efficient vehicles alongside EIS which seek to support small and medium and social enterprises, with others being the Seed Enterprise Investment Scheme and Venture Capital Trusts.
The government will now review the scheme, the impact it has had on social finances, and how the SITR scheme has been used to date.
HMRC’s data show that since EIS was launched in the 1993-94 tax year, 27,905 individual companies have received investment through the scheme, and £18bn of funds have been raised.
However, since SITR launched, only 50 social enterprises have received investment through the scheme and these enterprises have raised a total of £5.1m in funds.
EIS saw an overhaul in the Autumn Budget 2017, when the Chancellor Philip Hamond doubled the maximum allowance limit from £1m to £2m.
The 2017 Budget also introduced a “risk condition” – or a rule there there must be “a significant risk that there will be a loss of capital of an amount greater than the net investment returns” to qualify for EIS treatement, after concerns that companies who weren’t genuinly innovative could be used to shelter risky investments, while also providing the 30 per cent tax-relief afforded by the scheme.
Deepbridge Capital head of marketing Andrew Aldridge says: “This move towards putting in place the process for approving fund structures was first suggested by the Chancellor in his November 2017 Budget, and was part of the results of the Patient Capital Review.
“It’s an important next step and the EIS sector has been waiting for further clarification regarding the Government’s thinking, the guidelines it wants enforced and its expectations around approvals.
“The EIS sector has, over the last 12-18 months, changed dramatically and the PCR was the catalyst for that in terms of not allowing capital preservation schemes to continue, and instead returning the sector to a focus on growth-focused companies, which Deepbridge fully supports.
“Indeed, we believe that our investee companies already meet the ‘Knowledge Intensive’ requirement which is at the heart of this shift. In a real way, the legislation that will come out of this will further fine-tune the change in the sector and ensure that all stakeholders will be singing from the same song sheet.”