By Jonathan Davies
The government needs to simplify investment schemes and give people a stake in the country's start-up scene in order to create the 'equity economy'.
That is the view of the Institute of Directors (IoD), which is today (Monday) calling on government to unleash the potential of investment tax reliefs to make it easier and simpler for people across the UK to invest in small and medium-sized enterprises (SMEs).
Central to the IoD's report is an overhaul of the Enterprise Investment Scheme (EIS) and Seed Enterprises Investment Scheme (SEIS).
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%) 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% of all money raised going to businesses in the London and the South East.
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%) of IoD members, many of whom are directors of companies that could potentially use the scheme, had heard of SEIS.
The public has shown appetite for investing in large businesses through stocks and shares ISAs, and the IoD believes more people should have the opportunity to invest in start-ups and growing firms, giving them a stake in what the report calls the “equity economy”.
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
Jimmy McLoughlin, author of the report and the IoD’s Deputy Director of Policy, said:
“Britain’s start-up scene is thriving. More than two million businesses have been created in the last four years and more and more people are carving out their careers as an entrepreneur. There is a real appetite across the country for owning and investing in businesses and Britain tops the European league tables when it comes to the best place to start a new enterprise.
“With so much excitement around new industries, we cannot rest on our laurels. 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.
“If government lays the foundations, industry will build on them with exciting new platforms like aggregator funds. These could pool risk and diversify investments, encouraging more people with hundreds of pounds — not hundreds of thousands — to take a stake in the equity economy.”
You can download the full report here.