By Marcus Leach

The Government is today, Wednesday, publishing a consultation on proposals to encourage investment in small and start-up businesses with high growth potential, through the reform and simplification of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs).

It is also seeking views on new proposals to support seed investment through the tax system.

The smallest companies, entrepreneurs and start-ups can find it particularly difficult to attract equity finance because the small size of the investment required can deter investors who prefer to invest larger sums in big companies.

The Government therefore announced at Budget 2011 that it would consult on ways of encouraging seed investment through tax reliefs. Proposals for a new stand-alone scheme designed to target seed investment by ‘business angels’* are set out in the consultation published today. The scheme will be called the Business Angel Seed Investment Scheme (BASIS).

The reforms being consulted upon follow changes to the EIS and VCTs, which were announced at Budget 2011, subject to State aid approval including:

- raising the rate of EIS income tax relief to 30% from April 2011;
increasing the annual EIS investment limit for individuals to £1m from April 2012;
- increasing the qualifying company limits to 250 employees and gross assets of £15m for both EIS and VCTs from April 2012;
- increasing the annual investment limit for qualifying companies to £10m for EIS and VCTs from April 2012; and
- consulting on options to provide further support for early-stage (“seed”) investment.

“The Government wants to make the UK the best place in Europe to start, finance and grow a business and we know that a vital part of this is ensuring access to a wide range of sources of finance," David Gauke, Exchequer Secretary to the Treasury, said.

"Today we are proposing a new, targeted scheme to encourage greater investment by business angels in start-ups and entrepreneurs’ businesses. This, alongside our reform of the EIS and VCTs, is part of our plan to increase the competitiveness of the UK tax system, demonstrating that Britain is open for business.”

The consultation period runs to 28 September 2011. Following this, legislation to implement any proposals to be taken forward in Finance Bill 2012 will be published in draft in the autumn and there will be scope then for further comment on the draft legislation.

Join us on
Follow @freshbusiness