Finance · 28 April 2017

Over-complicated reform sees 200m drop out of Enterprise Investment Scheme

Enterprise Investment Scheme
Enterprise Investment Scheme was created to offer an incentive for investors to purchase shares in high risk ventures
Income raised by small UK businesses through the Enterprise Investment Scheme dropped by a fifth in 2016, according to new statistics from HMRC.

Figures from the tax office for the 2015/16 financial year revealed the total amount raised via the tax breakfell by over 200m. The significant fall in finance is a concern for entrepreneurs seeking to raise working capital for higher risk ventures.

The Enterprise Investment Scheme was launched in 1994 to encourage investment in smaller firms and help founders raise finance. Investors are able to receive a 30 per cent tax break off a maximum 1m yearly investment.

Ray Abercromby, a partner at financial services firm Smith & Williamson, suggested constant tinkering? by government may have left the Enterprise Investment Scheme too complicated for potential investors, after introducing restrictions on the issuing of shares.

we are seeing the changes at the Summer Budget 2015 take effect, Abercromby said of the declining uptake of the Enterprise Investment Scheme.

Reforms included restrictions forexisting shareholders alongside an investment limit for firms. Companies were also required to meet a number of new conditionsto qualify.

businesses and investors now have to pay very close attention to the structure of their businesses.The changes have forced individuals, who just want to get on and grow their business, to focus on the structure of the business in case they accidentally fall foul of the rules, he explained.

at first glance, the changes appeared to discourage investment in the UK’s small and scale-up businesses, the lifeblood of our economy, and these statistics indicate that could be the case.

Legislative changes dictated by EU regulations led to the decline in uptake of the Enterprise Investment Scheme, and Abercromby suggested a review of how the scheme is structured could see a surge in popularity.


 
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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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