Entrepreneurs raising cash to grow their businesses through the Enterprise Investment Scheme (EIS) has surged by a more than a quarter in the past 12 months, according to new research.
New data from HM Revenue & Customs (HMRC) has been analysed by private equity investment specialists Radius Equity to review how EIS is working.
The figures show EIS companies raised £1.4 billion in the last tax year, with companies raising an average £535,615 compared to £423,016 in the previous year.
The firm explained that their analysis revealed the popularity of EIS is mainly due to two factors:
Companies are still finding banks are unwilling to lend money to businesses without exemplary trading records
Investors are piling cash into EIS to take advantage of tax breaks.
Secondary fundraising
Secondary fundraising – a second round after start up – accounts for almost half of all EIS investment last year, up from 44% in 2013 and a third in 2012.
Director Gary Robins argues that EIS is helping small businesses re-emerge as a major job-creating engine for the economy.
“I believe what the figures are showing us is that EIS is not only for start ups but an alternative source of finance for the roll out stage of a growing new business. The cash raised can turn a local or regional business into a national brand.”
Meanwhile, HM Revenue & Customs (HMRC) has announced that under new measures put forward by Chancellor George Osborne in his Budget in March 2015 will set up a new forum for the Treasury and the tax man to discuss how reliefs for investment are working.
The first meeting is programmed for September.
Summer Budget changes
Top of the agenda is developing a standard annual return for Venture Capital Trusts (VCT).
The forum will also look in detail at how the Seed Enterprise Investment Scheme (SEIS) and EIS are helping businesses, with a view that HMRC can better understand how the tax reliefs are applied and the risk of tax avoidance is minimised.
New rule changes were also announced in the Summer Budget.
The lower cap for investments will drop to £12 million and limits will be set for SEIS, EIS and VCT funds going towards buy outs or acquisitions.
Some other tweaks have been made to when companies have to make an initial sale after original investment and extra rules and limits for knowledge-intensive companies.
