By Daniel Hunter
The number of UK businesses looking to raise funds under Government schemes designed to encourage investments in unquoted companies has soared by 90% in the past year, says Rockpool Investments.
A total of 4,075 companies applied to HMRC in 2012/13 for approval under the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), compared to 2,147 applications (EIS only) the previous year.
According to Rockpool, changes which came into force in April 2012 to expand the scope of EIS, along with the launch of SEIS to boost investment in smaller businesses, are key factors in the sharp rise in pre-approval applications (see Key Facts box below).
“It’s great to see the overhaul of the enterprise investment rules working so well, giving a huge boost to SMEs by enabling them to replace vital lost bank funding, and giving investors more scope to benefit from significant tax reliefs on their investments," Nicola Horlick, Chairman of Rockpool, said.
“In recent years, EIS has proved to be very appealing for both SMEs and investors, however this huge leap in demand for what was already a very successful scheme shows that the recent reforms are providing a real shot in the arm for Britain’s small and medium sized companies. In the current climate, making it easier for more of them to secure the capital they need in order to realise their potential is great news for UK plc.”
Applications for pre-approval under the EIS scheme jumped by 9%, with 2,346 received in 2012/13, up from 2,147 the year before. HMRC also received 1,729 applications for pre-approval under the SEIS scheme in 2012/13 — the first year it has been available.
“The changes to the rules on enterprise investment have also been a massive boon for private investors, enabling them to invest more in larger, better established companies with lower risk profiles across a wider range of sectors," Horlick added.
"For those interested in opportunities to fund seed businesses with potentially higher risk-reward ratios, SEIS has also been an interesting option. Either way, the fact that the tax reliefs have been made so favourable is hugely positive for fuelling equity investment.
“Given that the tax breaks available for EIS are far more attractive right now than they are for VCTs — the other route for private individuals to invest in unquoted companies — we expect to see demand for EIS remain robust for the foreseeable future. Many sophisticated investors also like the fact that they can invest higher amounts than they can in VCTs and retain greater control over which companies they invest in, rather than leaving all the decision-making to a fund manager.”
Rockpool points out that the maximum investment in VCTs is £200,000. Investors receive 30% income tax relief on shares held for more than 5 years and are allowed tax free capital gains but unlike EIS they do not get deferral relief, loss relief or inheritance tax relief.
Join us on