Fund managers are urging the government to spread the word about tax incentives for start-up investors.
The money men say too few businesses and entrepreneurs are aware of the benefits of the Seed Enterprise Investment Scheme (SEIS) and the enterprise Investment Scheme (EIS).
Both schemes offer business angel investors generous tax breaks for staking their cash against businesses that otherwise are unlikely to raise the money they need to grow.
The call from the Enterprise Investment Scheme Association (EISA) follows the release of a report published by MPs on the Business, Energy and Industrial Strategy Committee.
The report highlighted that awareness of SEIS and EIS among businesses was low and more need to be done to promote them.
Funding gap of billions
EISA Director General Mark Brownridge said: “The government must do more to help small and medium-sized enterprises (SMEs) obtain the funding they need to grow. And, as the MPs recommend, one of the ways it can do this is by better promoting, and demonstrating the value of EIS and SEIS.
“Why must the government do this? Because, as highlighted in this report, there is a funding gap for SMEs, particularly in the scale-up and growth stages, which may run into tens of billions of pounds a year, and that is before any possible fallout from Brexit is factored in.”
Investors can pick up 30% income tax relief and capital gains tax advantages for investing up to £1 million for three years in an EIS company.
The income tax relief rises to 50% against a maximum investment of £100,000 plus capital gains tax breaks for investing in a SEIS start up.
Alternative financing a success
According to HM Revenue and Customs (HMRC), which supervises the schemes, EIS raised £1.8 billion in 2014-15, while SEIS companies collected £175 million.
Since EIS was introduced in 1994, nearly 25,000 companies have benefitted from £14.2 billion of investment.
“EIS and SEIS have been growing rapidly in recent years, as businesses have found it harder to borrow from traditional bank lenders and so sought alternative sources of financing,” said Brownridge.
“EIS and SEIS are particularly attractive because the tax relief they provide allows investors to offset some of the risks involved in investing in early stage and smaller companies.”
