All major equity crowdfunding platforms use the Enterprise Investment Scheme (EIS) to offer tax-efficient investment in UK startups. Encouraging and rewarding patient capital investment is one of the guiding principles of crowdfunding, and a business-friendly tax regime is part of that.
Today the Sunday Times revealed that the taxman is looking at ways to clamp down on abuse of EIS, and its sister scheme, the Seed Enterprise Investment Scheme (SEIS). This news doesn't worry. EIS and SEIS exist in order to promote investment in startup companies with growth potential, by offering investors risk-mitigation strategies
This news doesn't worry us. EIS and SEIS exist in order to promote investment in startup companies with growth potential, by offering investors risk-mitigation strategies If the schemes are being treated cynically as mechanisms for tax avoidance, that harms their reputation, and also uses up a lot of creative energy that could be better spent on support startups that have a chance of succeeding.
EIS and SEIS are being examined in the context of the government's review of how growth firms are funded, and how the UK as a whole could be better at it. There is a section devoted to it on gov.uk
The Chancellor of the Exchequer also made a speech at last week's inaugural UK Finance Annual Dinner. It's an entertaining light read if you want to know what signals the government is trying to send to investment markets.
Investment Week reported the story in a more positive fashion. They mentioned the Treasury's concern about abuses of the scheme, but also emphasised that almost 22,900 individual companies have received investment through the scheme and over £12.2bn of funds have been raised, since EISs were launched in 1993-94. The article quoted an opinion from the Enterprise Investment Scheme Association (EISA).
"There is no doubt some EIS money is used in ways that do not adhere to the spirit in which the scheme was created. Perhaps this has gone too far and a wake-up call is needed.
"The wording in the consultation seems to suggest that the government thinks so and may be considering taking action to 'reprioritise' how the current tax reliefs are targeted."
Dominic Campbell, the CEO of investment platform Kuber Ventures, spoke in July about possible changes to EIS following the general election. Last week he told Investment Week the UK needs a "fit for purpose patient capital industry."
There is still time to respond to the government consultation. Details are online at Open Consultation: Financing growth in innovative firms. The survey is open until 2345 on Friday 22nd September.