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November 2017: well how exciting. Expectations were that the Chancellor and HMRC would see the money flowing into EIS and VCTs as a sum of cash worth grabbing and would change the tax treatment accordingly. It therefore came as a surprise to almost everyone when investment limits were doubled for both businesses and investors, just so long – that is – that the money was flowing into the right kind of EIS.
If you don’t know what an EIS is now is a good time to familiarise yourself because whether you are an investor in a young growing company or you are a young growing company they are designed for you.
Investors
EIS are a tax carrot offered by the UK Government to encourage you to invest your money in young, growing companies. They understand that these types of investments are high risk and illiquid – by their nature they are long term, or ‘patient capital’ as the current buzz phrase goes. Which means that a lot of people steer clear of investing their money in them, understandable really as you should never invest money that you can’t afford to lose and very few of us want to lose our money. And yet the returns, when such companies do well, can be phenomenal and the economy benefits too because these companies grow, employ people, pay more tax, can compete internationally, increase national productivity and encourage innovation. But to do all of that they need investment and that is where you come in and the tax benefits that EIS offer you.
Right now EIS is a bit of a tax star and in April 2018, when the changes to EIS announced in the Budget (22nd November 2017) apply they’ll be even better.
Not bad is it. And if you are wondering what a ‘knowledge intensive business’ is the answer is it is a definition created by HMRC and to fall within it companies need to have a certain percentage of skilled workers employed, must spend a certain percentage of their funds on research and development and innovation. But the simplest way to check if a company is eligible is to look at businessagent.com – we have an EIS tag (on the left hand menu) that allows you to search across UK crowdfunding platforms for businesses eligible for EIS investment.
Young growing companies
It may not feel like it sometimes but the Government wants you to grow and do well and it understands that getting hold of the capital to help you to do that isn’t easy. This is why they created EIS and SEIS, tax vehicles that were designed to make investing in young growing companies more attractive.
We think that this Budget was a bit of a boost for the alternative financing route, which mainly deals with the types of companies that the Government seems to want EIS investment directed towards. And that direction is away from investment in so called ‘safer bets’, also known as companies that are closer to IPO or are asset backed, towards younger companies that represent a greater risk of losing your capital – the companies that find it harder to attract money from more traditional sources are the very companies that they want EIS to help.
This is great news for you, as a company looking to attract investment. If you qualify for EIS investment then you become more attractive to investors, who understandably are likely to find a company that qualifies for the tax breaks that EIS offers them more attractive than one that does not. So how do you get to qualify for this money? And how much of it can you ask for?
For more on what is needed to meet EIS requirements today visit Gov.uk or call the team here at businessagent.com.
This all sounds really positive, where’s the bad news?
The bad news really only applies to those people who invested in some (note not all) VCTs and EIS through investment funds that are in the Governments view, investing in too many ‘safer bets’ and so will find the new, stricter definition of a qualifying investment awkward. The Government has made it clear that it wants money to be directed towards what they consider to be the right type of company. It wants more money in knowledge intensive and younger, growing companies. It will be policing where the money is directed far more closely from now on. That may impact the flow of money invested in unlisted companies in the short-term, but we fully expect that the clever folks at the investment houses won’t be put out for long.
Which means that yes; we think it is really positive. It is positive for investors who want to invest in companies and help them to grow with the aim of growing their money too. It is positive for those young companies that need investment to reach their potential and may struggle to gain it from more traditional sources that prefer older, more established companies. It is positive for the crowdfunding platforms that are fast becoming the most efficient way of accessing these companies and the investors within them – and of course if you want to look across all of these platforms businessagent.com is the way to do that. Last, and most importantly of all, it is positive for the UK economy, which needs new businesses to grow, be productive, employ people, compete globally, innovate and pay their corporate taxes.
Want to learn more? Investors should check out our crowdfunding pages and tools. Companies can learn more through our crowdfunding pages.
Tagged: Enterprise Investment Scheme EIS Autumn budget Investment investors investing tax relief
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