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A tax year end (TYE) update today from Key Business Consultants. We'll focus especially on EIS and SEIS.
Tax year end 2020 was surely the most extraordinary in the history of modern finance. The first quarter of the year had seen reports of a mysterious new virus out of China. By early April, the UK had entered lockdown and "social distancing" had entered the dictionary.
In this article we'll consider the implications for EIS and SEIS.
EIS & SEIS Investment Down
Unlike some investment vehicles, EIS and SEIS does not necessarily cluster around the end of the tax year. As such, investment in the final three quarters of 2019 was relatively unaffected by the coronavirus pandemic. As we say, it was only in Q1 2020 that the effects really started to be noticed.
However, EIS and SEIS investment levels were affected. Amersham Investment Management explains:
SEIS and EIS investing in Q1 2020 was, like practically every other sphere of economic activity, severely impacted by the consequences of the Covid-19 pandemic. At the time of writing (April 2020) it is too early to infer any hard, detailed industry-wide assessment for S/EIS but anecdotally most managers known to this firm have had deployment plans affected quite seriously.
Even though investment happens through the year, the tax end is still significant because it remains:
A significant hard deadline in the fiscal calendar by which many investors seek to ensure deployment of their allocated funds in order, especially, to benefit from the opportunity to “carry-back” their tax reliefs to the previous tax year.
Other fund managers were more bullish. Par Equity said that, although investments were down generally:
EIS subscriptions were up 94% year on year (£4.5m v £2.3m), though starting from a low base.
Despite these challenging times, fund managers were optimistic about EIS and SEIS investing more generally. Coronavirus has been an immense challenge, but it also offers huge opportunities. This is especially true for small, nimble, fast growing companies. Companies that can benefit specifically from SEIS.
Difficulty In Valuing (S)EIS Companies
Hardman & Co points out an interesting aspect of the coronavirus effect on EIS fund companies.
One of the consequences of the current financial crisis is that it has become much more challenging to value many private companies, including those within EIS funds. The world has changed, stock markets are down, and funding has suddenly become less plentiful at a time when many businesses really need liquidity.
When markets have positive momentum, investors compete to become involved with strong companies. At the moment, the markets are extremely turbulent.
However, this will benefit the stable, well run companies in the long run.
Investors will want to send their money to only the strongest businesses, so it's a great time to stand out from the crowd.
If you'd like to discuss working with us, please get in touch. We have particular experience as SEIS tax specialists. We can help you navigate this tricky process while remaining fully compliant. In particular, we can help with the advance approval process. This can drastically increase the chances of your SEIS investment going ahead smoothly.
Please check out our case studies where we explain exactly how we work with businesses just like yours.