It’s been 30 years since the launch of the Enterprise Investment Scheme.
Along with its younger sibling, the Seed Enterprise Investment Scheme, these tax-incentivised programmes were brought about to encourage private investment into smaller, higher-risk and earlier-stage businesses – in turn giving a shot in the arm of British entrepreneurs and fuelling economic growth.
Fast-forward three decades.
The world is a different place, and the last four years in particular have irrevocably shifted the economic and business landscape.
The UK is still reeling from Brexit, the pandemic, and the subsequent cost-of-living crisis.
So, 30 years on, now is an apt moment to assess if EIS and SEIS have managed to evolve with the needs of the UK’s scaling businesses and, crucially, to ask whether the schemes are still fit for purpose in their current form.
A vital support structure
One of the central concerns confronting policymakers and entrepreneurs alike is the subdued levels of business investment across the UK.
While the past two years of rampant inflation and burdensome interest rates have presented a plethora of challenges for new and established businesses alike, the London School of Economic recently identified a widespread lack of investment as one of the key factors stymying productivity and holding back British business.
Despite concerted efforts to stimulate economic activity, investment has remained lacklustre, constraining the growth prospects of startups and constricting their potential contributions to the economy and the labour market.
By nature, EIS and SEIS are positioned to combat this investment shortage. But why then does the investment ecosystem in the UK remain so underweight?
Could it be that the EIS/SEIS frameworks are not sufficiently robust to address these challenges?
First, it’s important to acknowledge that the schemes have played a pivotal role in facilitating access to capital for fledgling enterprises, offering tax incentives to incentivise investment in high-growth potential ventures.
In its last EIS statistical report, HMRC revealed that the number of companies raising money through the scheme reached a record high of 4,480 in 2021/22, a 19 per cent rise, compared to the previous year.
In the same period, funding increased to £2.3bn, an increase of 39 per cent.
Despite this, the shortage in private investment flowing into promising startups and scaleups remains a major issue.
But as long as early-stage businesses are struggling to access capital to accelerate their growth, it seems clear that more needs to be done.
The benefits of greater investment in innovative startups goes far beyond the business world – the UK’s labour market, economy, and profile as a global hub for entrepreneurship could all be boosted by a more dynamic private equity investment market.
This begs the question, what can be done to get the most out of EIS and SEIS?
Levelling up EIS
The first step might be one of awareness – the EIS scheme in particular is aimed at individual investors, meaning any UK taxpayer who stays within the investment limits set by the HMRC is a potential investor for eligible businesses.
