Business angels have injected billions of pounds into thousands of companies since the government introduced tax breaks for investors almost two decades ago.
Financial Secretary to the Treasury David Gauke revealed the figures when introducing a joint Treasury and HM Revenue & Customs (HMRC) consultation on extending tax breaks for Venture Capital Trusts (VCT) to social enterprise projects.
Speaking about business angel investment, Gauke disclosed:
- The Seed Enterprise Investment Scheme (SEIS) has raised over £175 million equity investment for more than 2,000 companies since April 6, 2012
- The Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) have raised more than £16 billion for businesses in 20 years
“The scope of EIS and VCT were enlarged for investors in Budget 2012,” said Gauke. “This included increasing investment amounts and the size of qualifying companies.
Financial kick-start
“We also made sure tax breaks were focussed on companies that would have problems raising finance from elsewhere.
“Now, we what more information from businesses and investors about how these changes are working and if any further incentives are required.”
Although EIS and VCT investment limits and rules have recently been relaxed, they still fall well short of the tax incentives of SEIS.
The government view is new businesses need more of a financial kick-start, which SEIS offers.
If the business picks up, then SEIS can graduate to EIS or a VCT to raise more cash for growth.
“This government has a firm opinion that offering income and capital gains tax reliefs are excellent ways of encouraging investors,” said Gauke. “We can see that a simple formula of effective tax breaks equals more stimuli for investment.
SEIS benefits
“We need evidence of this from investors so we can engage with the European Commission on how to fund this equity gap for start-ups and growing businesses.”
SEIS investors take an equity stake in a business in return for pumping in up to £150,000 cash over two financial years.
The bonus is a 50% reduction on income tax for up to £100,000 of investment in the first year of SEIS – applying to all taxpayers.
Investors also pick up a 50% exemption on capital gains tax (CGT) from any assets sold to raise cash directly for SEIS investment.
At the end of the three-year SEIS, if the company is a success, no CGT is due on the increased value of the shares, but if the business fails, investors cans et off loss relief against other income.
