In a new report, Opening the Equity Economy, the IoD investigates the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) and argues their potential is not being fully realised.
In 2013/14, £1.6 billion was invested in a maximum of 24,000 companies through EIS/SEIS. The report finds, however, that nearly all of this money (95 per cent) came from large investors, each pumping more than £10,000 into companies through the schemes. The funds are also not reaching all parts of the UK, with 69 per cent of all money raised going to businesses in the London and the South East.
The paper argues that while the schemes are working well to direct investment into those businesses which are aware of them, it appears too few people know enough about how to use them. Fewer than two-fifths (38 per cent) of IoD members, many of whom are directors of companies that could potentially use the scheme, had heard of SEIS.
In order to raise awareness and make the schemes easier to use, the IoD is calling for:
- EIS and SEIS investments to be included in a super-ISA
- Government to promote EIS/SEIS as funding options to the business and investment community
- The introduction of an online-only system for claiming tax relief on investments of less than £2,000
- Industry and government to work together to create an EIS/SEIS ‘aggregator fund’ to give smaller investors the opportunity to take stakes in a number of companies with a much smaller investment
- A pilot scheme to be launched in the North West which explores the impact of a higher regional rate of SEIS tax relief
“Britain’s start-up scene is thriving but we cannot rest on our laurels,” says Jimmy McLoughlin, the IoD’s deputy director of policy and author of the report.
McLoughlin added, “Now is the time to confront the next challenge. That means turning start-up enthusiasm into scale-up success by harnessing the potential of investment tax reliefs. EIS and SEIS can open up the equity economy and help more people take a stake in the start-up revolution taking place around the country.
“Too few businesses, however, are aware of these schemes, and not enough investors feel confident enough to get involved. This needs to change. It makes no sense to force people claiming a few hundred pounds through the laborious offline process to get their tax relief, for instance.”
The report was written after consultations with IoD members and industry experts.
To download the full report, click here