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9 out of 10 Early Stage Businesses Could Fail - The Government Needs to Raise The SEIS and EIS

Posted 7 months ago

9 out of 10 Early Stage Businesses Could Fail - The Government Needs to Raise The SEIS and EIS
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Author: Sacha Bright & Oliver Murphy 

There is no doubt that coronavirus has had, and will continue to have, a significant impact on the whole of UK business. However, a recent survey has revealed that start-ups could bear the most damage in this current crisis.

There were 672,890 startups founded in the UK between 2018/2019.

Results from the survey, which was commissioned by the Enterprise Investment Scheme Association, show that based on the responses of 250 growth businesses seeking investment, 9 out of 10 faces the prospect of going under if the government does not take urgent action.

4 out of 5 businesses in contact with investors also said that the pandemic has impacted their plans “a lot or a great deal”. As a result of market volatility and heightened risk, many private investors are stepping back.

Although the Chancellor has offered one of the most groundbreaking relief packages designed to aid business, he has failed to address one of the UK’s most successful sectors.

Despite forming a major part of the UK economy, entrepreneurship is under significant threat. As of 2018, the UK is deemed as the best location for startups in the EU. And for a Conservative government not to act and let our start-ups fail is a damning contradiction of their pro-business ideology, and undoes nearly a decade’s worth of investment in small businesses.

NextFin has previously reported how the government’s Self-Employment relief does not extend to owner-managers of small limited companies, while many early-stage businesses will struggle to access the Coronavirus Business Interruption Loan.

Unless action is taken now, many thousands of businesses could be inflicted with irreparable damage. NextFin and the EISA are lobbying Rishi Sunak to increase the tax relief available for investors (from the present 50% for SEIS and 30% for EIS).

The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) have been responsible for almost £20 billion worth of private investment to create and drive the growth of over 27,000 businesses. Indeed, it is admired by many of our European counterparts. However, unlike the UK, many European nations such as France have set aside a combined 4.3 billion to support their start-ups.

According to Director General of the EISA, Mark Brownridge, the survey shows how coronavirus has threatened early-stage businesses:

“The evidence we have in the survey showing that nearly two thirds believe that relaxing the EIS rules would lead to an increase in equity funding, emphasises that the Government needs to act now, and we strongly encourage them to consider the request we have put to them to provide short term additional reliefs to investors without delay.”

This news comes as it was announced this week that Crowdcube had launched its “Save Our Startups Campaign” which also calls on the government to make changes to the SEIS and EIS to encourage private equity investment.

Fund members of the EISA are also lobbying the government and claim that there is an immediate call from growth businesses to their investors to reinvest in them to get them through the current crisis.

Investors are nervous. Extending the tax reliefs would encourage many to make further private sector funds available, which has to be in the interests of both the businesses and the Government.

The overwhelming benefits of raising the EIS and SEIS allowance

As NextFin has reported, while the Chancellor’s reforms to the CBILS has gone some way to addressing the lack of support small businesses receive, many have still been left in the lurch.

Mark Browridge has said: “Helping these businesses survive the short term crisis should enable them to achieve their long term ambitions. Once in that position, they will start to pay back that short term trust and investment through significant tax revenue and employment for the benefit of the UK economy.”

If the government were to increase the EIS and SEIS thresholds and tax relief credit, more money becomes available for businesses, while encouraging the rich to invest in enterprise. 

Instead of having to lay off staff, businesses will in-fact hire more employees, thus creating jobs while the government gets its money back through tax revenues.

Taking into account the fact that the UK is marvelled by many to be the startup capital of Europe, surely the government must consider the overwhelming benefits of the above scheme?

Disclaimer:

To the best of our knowledge, the information we have provided is correct at the time of publishing. SEIS and EIS tax benefits are dependent on your financial circumstances. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. 

Risk Warning:

Investing in equity crowdfunding and early-stage businesses involves high risks, which may include long-term investment horizons, illiquidity, lack of income and potential dilution. Any investor needs to be in the position to afford a total loss of capital invested.

NextFin is targeted at members who have the knowledge and experience to understand these risks and make their own investment decisions. You will NOT invest through NextFin but through the relevant crowdfunding website which also has signed off the content as a Financial Promotion on its own website. NextFin is not the originator of the financial promotions that appear on its site. However, we do to the best of our ability carry out limited compliance checks on the originator and the company seeking funding to ensure they are conforming to FCA regulations and anti-money laundering equity/requirements as appropriate. Business Agent Limited, trading as NextFin, takes no responsibility for this information or for any recommendations or opinions made by the companies or its users. Click here for our full risk warning.

Tagged: News Start-ups Tax Entrepreneurs



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