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In the UK, there are almost 30,000 startup and high-growth businesses who employ 3.3 million people. Whether it be through design, innovation, technology or research and development, these businesses are making an immense contribution to the economy by investing in infrastructure and people.
Yet, many are unlikely to qualify for the Coronavirus Business Interruption Loan Scheme, while others cannot access Bounce Back Loans because they are at a pre-revenue stage. Additionally, a large proportion of startups utilise S/EIS schemes that are incompatible with the Future Fund. For businesses that do qualify for schemes, they are being saddled with even more debt which is not suitable for very early stage businesses, and will only serve to exacerbate their ever-worsening financial situation, exposing the whole sector to market failure.
The Treasury, therefore, needs to increase the threshold and tax relief available under the Seed and Enterprise Investment Schemes to free startups from debt and stimulate private investment to allow them to seek their own equity-based investment, upon which they will heavily rely as the UK attempts its economic recovery.
Specifically, we are calling for:
Since their introduction, every Chancellor improved and/or widened the schemes prior to the 2015 changes, recognising their value to the UK economy including the Conservative manifesto which quoted “Some of our work has been spectacularly successful - such as the SEIS & EIS, which we will continue in the next parliament.”
By providing the UK’s most innovative and progressive start-ups with access to long-term capital, EIS and SEIS schemes are hugely beneficial to the UK economy as they create jobs and support the growth of businesses to launch new services and products, and ultimately result in higher tax yields for the government.
On 29 June 2020, following a consultation, the Commission announced the third amendment to the Covid-19 Temporary Framework made with the aim of resolving the "undertaking in difficulty issue" in respect of micro and small enterprises (i.e. undertakings with less than 50 employees and less than €10 million of annual turnover and/or annual balance sheet total). It also amends existing rules to provide for incentives for private investors to participate in Covid-19 related recapitalisation measures.
Startups have been a cornerstone of growth in the most economically developed countries and in the current crisis, can be a cornerstone to jumpstarting the UK economy. Now the Treasury has the perfect opportunity to act to free our startups by encouraging private investment into struggling businesses.
According to HMRC’s SEIS and EIS Statistics Report published in 2019, over 33,000 investors claimed EIS tax relief on 7000 companies in 2017-2018.
We believe these 33,000 investors can be used to deliver economic stimulus to all eligible SMEs throughout the UK. SMEs are hiring, providing employment opportunities for current workers in the UK and for future workers in the innovation economy.
The UK government must act now to protect the UK’s entrepreneurial future so that we do not lose a generation of startups to Covid-19.
I, the undersigned, support the Free Our Startups campaign.
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