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What does the budget mean for startup investing?




3 min read

George Osborne’s budget last week elicited a mixed repsonse from commentators, as tends to be the case with these things. The main focus was on changes to the savings and pensions system, and amendments to the tax thresholds. But what does the budget mean for the startup ecosystem? SyndicateRoom’s CTO Tom Britton takes a look…

Budget

The overwhelming consensus within the startup community is that:

  1. The Seed Enterprise Investment Fund (SEIS) – which provides a 50% immediate tax relief on investment into eligible startups –  has been made permanent, and this is a very good thing. Without SEIS and EIS, a large number of investors would probably take their money elsewhere; in Nesta’s report, entitled Siding with the angels, more than 50% of investors stated that their investments into startups would decline without tax reliefs. While this might sound like I’m highlighting the obvious, the future of SEIS was not always clear, so it’s great to see a strong commitment to the cause. (Read more about the Seed Enterprise Investment Scheme here.)
  2. Export finance lending is increasing to £3 million, while export finance lending rates are decreasing, and this will have positive knock-on effects for startups and startup investors. While this is not a direct tax relief or benefit to startup investors, the indirect benefit this will have on the bottom line through increased export sales, and the encouragement this will give small companies to seek to export sooner, should have a positive knock-on effect on investor returns in the future. It will also encourage more investment into companies with business models that benefit from exporting products
  3. A reduction of up to £2,000 in the amount of National Insurance contributions (NICs) employers will have to pay for employees will help startups reduce costs. It will also have the added benefit of removing barriers to growth by reducing the cost of employing that pivotal member of the team who could help make the difference between getting a good return and ending up with a write off
  4. Doubling the annual investment allowance (AIA) to £500,000 for businesses will help generate returns faster. While many pure startups may only dream of being able to invest half a million into their business, those that can benefit from this are likely to be profitable or well on their way to being so, and this change will help them invest in the plant / machinery needed to push through into the black

Those are the positives, but now for the four things we didn’t see in Osborne’s latest budget that would have made us even happier:

  1. An increase in entrepreneur’s relief. While it’s good to give investors breaks on their investments, the entrepreneurs themselves need further breaks to ensure they can survive while their business grows, and are not tempted away from their startup and back into a more secure job
  2. An increase in the amount that can be raised through SEIS. Yes, the fact that SEIS has been made permanent is a big positive, but we feel that the cap of £150,000 is slightly prohibitive to many companies, and that the government should consider raising this to £250,000
  3. An increase in the maximum value of the government’s Growth Vouchers. While this initiative has only been going a few months, what is clear is that the £2,000 upper limit on the vouchers only goes so far. Considering the costs of many services that startups require, it would be good to see this level raised, and also for there to be a further push on companies to accept the vouchers. Why shouldn’t startups have access to top-tier service providers?
  4. The inclusion of equity as well as debt-based peer-to-peer platforms within ISAs. The latest budget included the news that from next year consumers will be able to invest up to £15,000 a year via peer-to-peer lending platforms, without paying tax on any of their gains. Great. But we’d like to see equity as well as debt-based crowdfunding included in ISAs in the future please!

All in all, the budget is definitely a progressive one for startups and startup investors alike. We can only hope that things continue down this path, and that interest in working for or investing in startups continues to flourish.


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