As a Co-founder of SyndicateRoom and non-executive director of the UKBAA, I’ve been involved in a number of Patient Capital Reviews that were held to inform the upcoming budget. Following these reviews and discussions with colleagues in the industry, there are a few items I’m hoping are addressed around SEIS/EIS and VCTs. And it’s not all about giving more relief to more investors – in fact, in most cases I believe the opposite is required.
In this industry, we’re experiencing a perceived lack of scale capital for UK ventures. While the amount of capital being raised through EIS and VCTs are at near-record levels, the amount of EIS investment into technology companies reflects less than one-third of the total, and the amount of VCT funds going into unlisted companies is questionable. Many VCTs are dividend-paying tax shelters that invest in listed businesses, making these trusts unworthy to bear the name ‘venture’.
So, here is my view on what should happen during the budget today:
- HMRC should further restrict what qualifies for all venture-related tax reliefs (SEIS/EIS/VCTs) to reduce the money being put into non-venture, non-scale styled companies
- VCTs need the most tightening-up as many VCTs invest in listed, dividend paying companies which are a far cry from the original intent of the VCT
- EIS/SEIS reliefs should be maintained
- SEIS level should be increased from £150,000 to £250,000 as companies raising SEIS need more runway to prove their model than the £150,000 current limit supplies. While HMRC recently removed the restriction on companies raising hybrid SEIS/EIS rounds, investor appetite in these early-stage businesses is often reduced once the SEIS is gone
- More relief should be provided to the entrepreneurs who often take significantly reduced, or no, salary, in an effort to ensure more is used to grow the business. In particular, if the entrepreneur has helped to create jobs, and therefore is contributing more to the economy in that way, they should
There’s not a lot to my wishes. Mostly protecting those that do take on board the risks associated with investing in early-stage businesses in addition to re-gearing venture capital trusts to be more in line with their initial purpose, supporting growing companies that have gone beyond EIS levels but that are not yet ready to take on board the burdens of being a listed business.
Amounts of funds raised through EIS, 1993–94 to 2015–16
EIS by industry
Funds raised by VCTs by tax year, 1995–96 to 2016–17
Source: HMRC, 19 October 2017, Venture Capital Trusts Statistics Table 8.6