Curbing tax relief schemes for SME investors would be a mistake warns RSM

Tax relief schemes for investors in entrepreneurial and SME businesses are working as intended and should not be curtailed, RSM has warned.

Andrew Hubbard, a tax consultant at RSM said:

New statistics published today on companies raising funds through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) follow the publication last week of new figures on Entrepreneurs Relief. Conveniently they allow us to look both at the start up and growth phases of businesses and then at what happens when those businesses mature and are sold.  

‘There are a number of different tax reliefs available to investors who put money into start-ups or expanding businesses: the main ones are the Enterprise Investment Scheme and the newer, Seed Investment Scheme for smaller businesses.

‘The latest statistics show that the amount of EIS and SEIS investment has gone up, although the number of companies which have raised money through these schemes has remained broadly static. In other words, the increase in investment is because investors are prepared to put higher amounts into companies rather than because more companies are seeking investment.  

‘Indeed, the number of companies seeking EIS investment for the first time is broadly at the same level as it was in the late 1990s although the total amount invested has increased five-fold. One might have expected that a greater number of companies would have sought EIS investment than appears to be the case – perhaps the mind-numbing complexity of the rules still deters some companies which would otherwise be eligible.

‘One other point to note is that the number of very small investments via EIS and SEIS has increased quite sharply. One reason for this is that crowdfunding has made EIS and SEIS a realistic proposition for companies to raise money from small investors in way which was not previously practical. We see that as a positive sign – previously start-up companies have struggled to find a way of encouraging small investors to make investments which, by their very nature, carry some risk.

‘At the other end of the business cycle the latest figures for Entrepreneurs’ Relief show a continued increase in both the number of people claiming the relief and the size of gains which attract the relief. In total, 52,000 people claimed the relief last year, on gains which total almost £250m. These figures show that businesses that weathered the storm of the recession have prospered since then, allowing their owners to sell out making substantial profits.

‘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 are well targeted and 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.’