The Treasury wants to reboot the flagship Seed Enterprise Investment Scheme (SEIS) for start-ups by focusing on knowledge intensive firms.
An investment review has shown that companies that rely on intensive research and development of products have the highest potential for growth – but face the most difficulties in raising capital.
The review has spawned a detailed paper – Financing growth in innovative firms: Enterprise Investment Scheme knowledge-intensive fund consultation
The paper discusses the capital gap for knowledge-based start-ups and asks for views on the best ways to narrow the gap while unlocking £20 billion of additional investment over the next 10 years.
The Treasury is against introducing yet another tax-incentivised investment scheme.
Tax relief shake-up
Besides SEIS, investors can also opt for the Enterprise Investment Scheme (EIS) or Venture Capital Trusts (VCT).
All the schemes offer generous tax breaks to investors, depending on the level of investment.
The suggestion is to refocus SEIS towards knowledge-intensive start-ups.
A shake-up of how tax reliefs would be applied may also be on the cards.
The consultation paper talks about a range of alternatives, including dividend tax exemption, capital gains tax relief (CGT), extended carry-back of income tax or CGT deferral and upfront tax relief.
Dividend tax exemption indicates the government is considering extending the three-year SEIS term.
New fund structure
“The government responded to the consultation at Autumn Budget 2017, announcing an action plan to unlock £20 billion of investment over the next ten years. This included several changes to the EIS, SEIS and VCT schemes.” says the report.
“The EIS and VCT schemes are therefore being significantly expanded for knowledge-intensive companies. The government also announced that it would consult on a new EIS fund structure aimed at improving the supply of capital to such companies.
“Any design would also need to ensure value for money for the taxpayer and to balance the government’s need to ensure fairness across the tax system. It should be robust enough to defend against attempts to use the fund model for aggressive tax planning or capital preservation purposes.”