Home Business NewsBusiness New stats indicate small businesses are facing declining investment

New stats indicate small businesses are facing declining investment

by LLB Reporter
28th Apr 17 1:43 pm

Here’s why

Statistics released Thursday by HMRC demonstrate a near 20 per cent decline in the amount raised by companies using Enterprise Investment Scheme (EIS) tax relief, year on year. The number of companies using EIS scheme while the total amount raised fell by over £200 million.

Ray Abercromby, partner in business tax at Smith & Williamson, the accountancy, investment management and tax group said Thursday: “We are seeing the changes at the Summer Budget 2015 take effect.  The alterations themselves weren’t too hard hitting but the constant tinkering of these government backed tax schemes is causing uncertainty for small businesses and investors alike.”

“Businesses and investors now have to pay very close attention to the structure of their company.  The changes have forced individuals, who just want to get on and grow their business, to focus on the structure of the business in case they accidently fall foul of the rules.  At first glance the changes appeared to discourage investment in the UK’s small and scale-up businesses, the lifeblood of our economy, and these statistics indicate that to the case.”

Subject to trading and timing requirements, the EIS allows a 30 per cent income tax relief, set off against income, one year carry back of the income tax relief as well as a capital gains tax exemption on the disposal of shares (if sold after a qualifying three-year period).”

“Existing gains can also be deferred against the EIS investment. However, the rules and structures surrounding the use of, and claiming of, the relief have become increasingly complicated in recent years.”

Will Brexit have an effect?

The Finance Act (No 2) 2015 introduced significant changes to the EIS rules which took effect for shares issued on or after 18 November 2015. Most of the rule changes emanate from the EU as part of their continued review of EIS and the other venture capital schemes as part of the state aid provisions.

“Post-Brexit, the government may choose to look at the relief associated with EIS/SEIS and return to pre-2015 levels.  It has proved to be very popular, and beneficial to the economy as a whole, and would be a way of encouraging UK small business growth.”

SEIS levels maintained

The statistics, which are the most up to date, show the changes for the 2015-16 year.  The number of, and amount claimed, under the Seed Enterprise Investment Scheme remained constant year on year with only a slight decline.

Abercromby added: “The SEIS rules are similar to EIS, but allow for an enhanced up-front income tax relief of 50 per cent for subscriptions of shares by investors, and a permanent elimination of tax on 50 per cent of reinvested gains.  However, much like EIS, the constant changes to the scheme have left it very complicated for investors and businesses.”

 

Disclaimer:

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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