EIS And SEIS Tax Schemes Investments Fall For 2018-19

Gary Green
Gary Green
July 7, 2020

The latest EIS and SEIS statistics for the year 2018-19 have been released by HMRC, revealing investment in both schemes has fallen on the previous year.

HMRC reports that, in the 2018-19 tax year, 3,905 companies received investment through the Enterprise Investment Scheme (EIS) totalling £1.8 billion, a decrease of £200 million (10 percent) from 2017-18.

Investment through the Seed Investment Enterprise Scheme (SEIS) faced a sharper decline. A total of 1,985 companies raised £163 million, down 16.4 percent from 2017-18, when 2,430 companies raised £195 million.

Stricter rules on venture capital investing introduced in December 2017, can be attributed to the downturn in EIS investments. The new rules dictate that entrepreneurs must prove to HMRC that there is a “significant risk” of a capital loss on their shares exceeding the net investment return. Per the latest estimates, nearly 1 in ten applications are being rejected or withdrawn due to the firmer rules.

Companies from the Information and Communication sector continued to thrive as they accounted for £543 million of investment (30 percent of all EIS investments). Meanwhile, 65 percent of all EIS investments were allocated to businesses registered in London and the South East, totalling nearly £1.2 billion.

SEIS investments show a similar trend, with the Information and Communication sector accounting for 34 percent of all SEIS investment (£55 million). Further, companies registered in London and the South East received £110 million of investment (71 percent of all SEIS investments).

1,530 companies raised funds under the SEIS scheme for the first time in 2018-19, a decrease from over 1,700 in the previous year.

CEO of Nextfin, Sacha Bright, said: “This goes to show how effective the EIS scheme is. If the government increases or decreases the scheme’s allowances, it seriously affects the amount of investment businesses receive.

“In 2012, for example, the government introduced SEIS and increased EIS allowances. As a result, there was an immediate increase in investment in early-stage businesses. And in 2017, we saw a decrease in investment when restrictions are imposed.

“It’s a shame that the EU is road-blocking our government through state aid rules preventing the UK to invest in one of its most successful sectors. The UK government is unable to increase EIS allowances, which is a proven method to deploy private investor’s capital into early-stage businesses.

“If Europe is truly a Union, holding itself up as a beacon of freedom, surely it should act fast on behalf of the British people and its European residents to relax state aid rules and encourage the British government to increase EIS/SEIS allowances to save our start-ups, and in turn protect millions of jobs.”

EIS and SEIS Explained

The EIS and SEIS schemes are part of the UK government’s initiative to support small and medium enterprises. It’s designed to encourage investment in ambitious UK-based businesses by offering significant tax relief for investors.

Both schemes are very similar but have key differences, with SEIS focused on smaller enterprises. SEIS offers Income Tax relief of 50 percent against the amount invested. EIS, in comparison, gives investors 30 percent tax relief.

SEIS-backed businesses have a lifetime investment limit of £150,000, and investors can expect tax relief benefits of up to £100,000 each tax year. Investors are exempt from Capital Gains Tax (CGT) on any gain from the sale of shares if they have been held for three years.

Further, there is a CGT write-off of 50 percent of the amount invested in the same tax year. Shares are generally inheritance tax (IHT) free, as long as they are held for an initial period of two years. If the shares are sold at a loss, investors can offset them against CGT or Income Tax.

While SEIS is targeted for companies in their infancy, EIS is designed for small and medium enterprises. An investor can invest up to £1m per tax year. An EIS-backed company has a lifetime investment cap of £12m – or £20m if the business is “knowledge intensive.”

Investors are exempt from CGT for any gain made from the sale of their shares after three years and can defer up to 100 percent of their investment against any CGT accrued up to 1 year before or three years after disposal. Like SEIS, shares held are generally IHT free, and if shares are sold at a loss, investors can offset this amount against CGT or Income Tax.

The annual statistics from HMRC, which can be viewed in full here, detail the number of companies that have received investment through the EIS, SEIS, and Social Investment Tax Relief (SITR) schemes, and the total number of funds raised.

It also provides an industrial and geographical breakdown of companies, the distribution of businesses by the amount of funds raised, and the distribution of investors by the size of their investment.

Following Brexit, there is a possibility that investors will look to invest their money at home, in the UK, rather than abroad. Equally, some key investors could choose to take their business out of the UK, which could be a setback for SMEs.

So, while the effect of Brexit is yet to be ascertained, these annual figures should be carefully examined in future years to recognise the trends in investment, including the industrial and geographical breakdown.

We at Key Business Consultants specialise in SEIS and EIS tax. If you would like to get some advice or have a friendly chat with a highly experienced team in this area, please don't hesitate to contact us.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
March 4, 2022
An Overview of EIS (Enterprise Investment Scheme) - All You Need to Know

There are several benefits for the EIS, or Enterprise Investment Scheme, to make this an interesting...

March 3, 2022
Tax Relief for Angel Investors: Gary Green's Webinar for Stakeholderz

Key Business Consultants' principal Gary Green spoke with Stakeholderz discussing the SEIS & EIS scheme and...

February 23, 2022
What Are EMI Share Schemes? All You Need to Know

If you are considering awarding shares to your employees, an Enterprise Management Incentive is often the...

January 31, 2022
Payments on Leaving Employment: How to Reduce Your Tax Liability

Normally the process for leaving employment is quick and straightforward but this is not always the...

January 17, 2022
HMRC Investigations: What You Need to Know

Discovering that you are being investigated by HMRC can be very stressful, even if you are...

January 14, 2022
Business Transactions - Guide to Planning and Executing Efficiently

There are some transactions in business that are significant and require substantial forward-planning to be a...

January 12, 2022
Why Employee Equity is an Important Issue For Every Business

Being a business leader is about being willing to embrace innovation and be flexible about how...

January 10, 2022
An Employer’s Guide to Settlement Agreements

If you need to terminate the contract of an employee, a properly drafted settlement agreement can...

January 7, 2022
Taxation of Private Company Shares - What Should You Know?

Many companies opt to reward their employees with shares or options because of the manifold benefits...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2022 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram