The Government is
today publishing a consultation on proposals to encourage
investment in small and start-up businesses with high growth
potential, through the reform and simplification of the Enterprise
Investment Scheme (EIS) and Venture Capital Trusts (VCTs). It is
also seeking views on new proposals to support seed investment
through the tax system.
The smallest companies, entrepreneurs and start-ups can find it
particularly difficult to attract equity finance because the small
size of the investment required can deter investors who prefer to
invest larger sums in big companies. The Government therefore
announced at Budget 2011 that it would consult on ways of
encouraging seed investment through tax reliefs. Proposals for a
new stand-alone scheme designed to target seed investment by
‘business angels’* are set out in the consultation published
today. The scheme will be called the Business Angel Seed
Investment Scheme (BASIS).
The reforms being consulted upon follow changes to the EIS and
VCTs, which were announced at Budget 2011, subject to State aid
approval including:
• raising the rate of EIS income tax relief to 30% from April 2011;
• increasing the annual EIS investment limit for individuals to
£1m from April 2012;
• increasing the qualifying company limits to 250 employees and
gross assets of £15m for both EIS and VCTs from April 2012;
• increasing the annual investment limit for qualifying companies
to £10m for EIS and VCTs from April 2012; and
• consulting on options to provide further support for
early-stage (“seed”) investment.
David Gauke, Exchequer Secretary to the Treasury, said:
“The Government wants to make the UK the best place in Europe to
start, finance and grow a business and we know that a vital part
of this is ensuring access to a wide range of sources of finance.
Today we are proposing a new, targeted scheme to encourage greater
investment by business angels in start-ups and entrepreneurs’
businesses. This, alongside our reform of the EIS and VCTs, is
part of our plan to increase the competitiveness of the UK tax
system, demonstrating that Britain is open for business.”
The consultation period runs to 28 September 2011. Following
this, legislation to implement any proposals to be taken forward
in Finance Bill 2012 will be published in draft in the autumn and
there will be scope then for further comment on the draft legislation.
Notes for Editors
1. The consultation document can be found at :
http://www.hm-treasury.gov.uk/consult_tax_advantaged_venture_capital_schemes.htm
2. The proposals set out in the consultation are at various
stages of the Government’s framework for tax consultation. Most
are at Stage 1, (setting out objectives and identifying options)
or Stage 2, (determining the best option and developing a
framework for implementation, including detailed policy design).
The changes affecting feed-in tariff businesses are at stage 3,
(draft legislation).
3. Evidence suggests that SMEs and start-ups encounter
difficulties in accessing equity finance up to £10 million. Those
difficulties may be particularly acute for seed stage companies.
4. Since their introduction in the 1990s, the EIS and VCTs have
supported over £11.5bn of equity investment into UK businesses.
The schemes incentivise investment in smaller, qualifying
companies by offering a range of income and capital gains tax
reliefs to individual investors who subscribe for new shares in a
VCT or in a company qualifying under the EIS rules.
5. Both
VCTs and EIS are State aids because they provide government
support that favours one class of enterprise over others. This
means that any further reforms to the schemes need to be agreed by
the European Commission.
6. * Under a new seed investment scheme, the Government would
need an agreed definition of ‘Business Angel’ that was effective
in practice and included all those investors who could provide
benefit to start-up companies. The EC Commission defines Business
Angels as wealthy private individuals who invest directly in
young, new and growing unquoted businesses and provide them with
advice, usually in return for an equity stake in the business, but
may also provide other long-term finance.
7. The Government’s Plan for Growth, published alongside the
Budget in March 2011, set out measures to achieve four overarching
ambitions for the British economy, including making the UK the
best place in Europe to start, finance and grow a business. A
vital part of this is ensuring that smaller businesses in
particular have access to a wide range of sources of finance.
8. In February 2011, the Government agreed with the major UK
banks that they will provide £76 billion of gross bank lending to
SMEs in 2011, an increase of 15% on 2010. The Government has also
committed to extend the Enterprise Finance Guarantee for the rest
of this Parliament, supporting up to £2 billion of lending to businesses.
9. In addition, the Government has taken a number of steps to
ensure the availability of equity finance. Government support for
Enterprise Capital Funds will continue with a further £200 million
over the next four years. At Budget 2011 the Government also
announced proposals to encourage investment in businesses with
high growth potential by reforming the Enterprise Investment
Scheme (EIS) and Venture Capital Trusts (VCTs).
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