Enterprise investment scheme changes don't go far enough, says BDO

As promised in November’s Pre Budget Report, the Chancellor has introduced simplification of the Enterprise Investment Scheme (EIS), and Venture Capital Trust investment.  In brief these are: the relaxation of rules concerning when a Company has to spend money raised through the EIS, greater flexibility for investors wishing to “carry back” tax relief and the removal of the capital gains tax charge on share-for-share exchanges. 

David Brookes, Tax Partner at BDO LLP comments “Whilst these changes are welcome, they don’t go nearly far enough.  The Chancellor has ignored justifiable calls to raise income tax relief on EIS investment to 40 per cent, and relax the rules for investee companies, and in doing so, has missed a vital opportunity to help small businesses raise increasingly scarce equity finance to get them through the recession and create jobs.” 

The Chancellor has not answered calls from industry to relax the rules for the type of company that can benefit from EIS investment. 

David Brookes said “This is a missed opportunity.  Companies can only raise £2million a year from venture capital schemes, and have to have less than 50 employees. These restrictions are certainly hindering investment in medium sized companies and the Chancellor should have taken a more robust position on the EU State Aid rules behind them and removed the £2million limit and increased the employee limit from 50 to 250. 

The French, for example, have “Fonds Commune de Placement dans l’Innovation” (FCPIs).  The FCPIs are similar to EIS Funds and operate a two-tier incentive, with the more restrictive of these required to invest only 40 per cent of the funds in companies meeting the SME definition (ie a 250 employee limit). French investors can claim relief against the French wealth tax as well as income tax and capital gains tax incentives.”
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