Tax & admin · 1 November 2017

Experts warn against curbing successful EIS and SEIS tax relief schemes

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There is no evidence of abuse of tax relief schemes like EIS and SEIS

Curtailing tax relief schemes for investors in entrepreneurial ventures and small UK businesses in the upcoming Budget would be a mistake, a leading tax consultants has warned, as the majority of the schemes work well.

According to tax experts from consultants RSM, support for tax relief measures like the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment (SEIS) should continue, as the amount raised to fund smaller enterprises via these programmes carries on growing.

The latest government statistics, published last month, suggest that tax relief schemes like EIS for small, high-risk companies, and SEIS for early-stage ventures, are well targeted.

For example, since the EIS scheme was launched in 1994, a total of 6,355 companies have received investment and almost £16.2bn of funds have been raised.

In the 2015/16 tax year alone, 3,470 businesses raised a total of £1,888m through EIS, whilst the 1,645 firms raising funds for the first time that year raised investment totaling £997m.

In 2015/16, some 2,360 businesses received investment through SEIS, with £180m of finance raised. More than 1,800 of these ventures were raising funds for the first time under SEIS, representing £154m in investment.

What are the SEIS and EIS startup tax breaks?

The figures for Entrepreneurs’ Relief, a tax relief measure which significantly reduces the amount in capital gains tax company directors must pay on their startup’s profits, suggest that the scheme has also worked well. It enables small business owners who were able to weather the financial crisis to prosper since then.

Since the launch of Entrepreneurs’ Relief, both the number of people claiming the relief and the size of gains which attract the relief have continued to increase. In total, 52,000 people claimed the relief last year, on gains which total almost £250m.

RSM tax consultant Andrew Hubbard said that that these tax relief schemes should be championed in the run up to the chancellor’s Budget announcement on 22 November, rather than be viewed with skepticism.

He added: “At Budget time there is always speculation that these valuable reliefs will be curtailed because they are too generous. That would be a mistake. These reliefs support businesses and their owners.

“They encourage the raising of capital and allow owners to capitalise on the value of the businesses which they have worked so hard to build up. There is no evidence of abuse of the reliefs – they are working as they should.”

Commenting on the latest government statistics for the EIS and SEIS tax relief schemes, Hubbard pointed out that the number of very small investments made via the schemes had increased sharply in more recent years.

“One reason for this is that crowdfunding has made EIS and SEIS a realistic proposition for companies to raise money from small investors in ways which was not previously practical,” he said.

“We see that as a positive sign – previously startup companies have struggled to find a way of encouraging small investors to make investments which, by their very nature, carry some risk.”

HMRC targets wealthy investors avoiding tax via EIS scheme  

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

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