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Government Could Expand Future Fund To Include EIS Tax Relief

Posted 4 years ago

Government Could Expand Future Fund To Include EIS Tax Relief
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It is being reported that the government’s support package for startups could be amended to incentivise private investors to invest in small businesses alongside the government with the prospect of tax relief.

To be eligible for a Future Fund loan from the government (via British Business Bank), a business must be “an unlisted UK registered company that has raised at least £250,000 in aggregate from private third party investors in previous funding rounds in the last five years and have a substantive economic presence in the UK”.

Loans from £125,000 to £5m will be made available, with half of the bridge loan being match-funded by investors.

As NextFin has reported, the vast majority of early-stage UK funding is powered by SEIS/EIS. The scheme, as it stands, is incompatible with SEIS/EIS.

Right now there is no incentive for private investors to invest in a start-up affected by Covid-19. As the Enterprise Investment Scheme Association has reported, an estimated £9bn has been removed from funds that invest in early-stage businesses.

Although government funding goes some way to incentivise private investment, it has not fully recognised this, and match funding is not available.

As the fiasco surrounding the Coronavirus Business Interruption Loan Scheme (CBILS), has demonstrated, running these investments via overly-bureaucratic government institutions means that this funding does not get to businesses fast enough.

According to reports in The Telegraph, officials are in talks over allowing backers that use the Enterprise Investment Scheme (EIS) to provide match funding through the Treasury’s £500m Future Fund.

The Government will co-invest in start-ups alongside private backers through convertible loans, but the scheme will not offer investors the tax relief typically available. Many early-stage firms are heavily reliant on investors using the EIS.

CEO of NextFin, Sacha Bright, said: “The issue here is that the government had to move fast and did not realise that SEIS/EIS investments cannot be made on a loan.

“Already, the SEIS and EIS have been responsible for almost £20 billion of private investors’ capital to create and drive the growth of over 27,000 businesses.

“The majority of start-ups use SEIS/EIS, so there would be no match funding. It's encouraging to hear that the government is looking at changing this. However, in these challenging times, these schemes must go much further to attract private investors as right now, even with SEIS/EIS tax incentives, they are not investing as reported by the Enterprise Investment Scheme Association.

If the government complemented this new program with an increase of the income tax relief credit to 50% for EIS and 70% for SEIS, we would see millions freed up for matched funding."



Author: Sacha Bright & Oliver Murphy


To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.


Tagged: News EIS SEIS Future Fund Covid-19

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