The number of British small businesses looking for financial backing under the Enterprise Investment Scheme (EIS) is on the increase, says one private equity firm.
Rockpool Investments says that HM Revenue and Customs has given the green light to a growing number of EIS applications from firms looking to raise money.
The scheme is designed to help small, higher risk companies raise cash by offering a number of tax breaks to investors buying shares in the company.
Investors can claim up to £300,000 in income tax relief, while a capital gains tax exemption is available for setting off against any investment gain.
Now, research by Rockpool shows that EIS is beginning to take off and become an increasingly popular way for UK businesses to gain access to private finance.
HMRC approved 91% of EIS applications in 2011/12, which is up slightly from the previous year’s figure of 89%.
Rockpool says that the number of firms looking for EIS-qualification so they can go looking for funding has rocketed by 47% to 2,147 applications this year, compared with 1,457 last year.
The rise in applications shows how HMRC is helping companies in the UK take advantage of EIS, says the firm.
Another reason being put forward for its success by Rockpool is the widening of the EIS criteria which were brought in last year and which underline the government’s commitment to helping small firms increasingly find access to the funding they need using the scheme.
Gary Robins, a partner at Rockpool, said: “In the year since the radical shake up of the EIS rules by the government, the scheme is increasingly attractive to investors and has allowed bigger companies to become eligible and the tax incentives have also been made more attractive.”
He points out that small businesses are still struggling to find funding from banks which means that accessing finance from private investors is becoming increasingly vital and is now a substantial source of backing for the UK’s small firms.
Mr Robins added: “This sort of private investment is essential if there is going to be a dynamic and expanding small business sector which will be critical to the UK’s economic well-being.”
He added that HMRC has taken up a crucial role in enabling businesses in the UK to gain access to a tax-efficient funding which in turn will help keep HMRC busy in the months to come.
The Enterprise Investment Schemes now has a little brother called the Seed Enterprise Investment Scheme (SEIS). You can read more about the SEIS here