Alternative investment experts have urged chancellor George Osborne to bolster support for investments in start-up businesses in this week’s Budget.
Those behind alternative investment schemes, such as venture capital trusts (VCTs), enterprise investment schemes (EISs) and seed enterprise investment schemes (SEISs), have said such initiatives have been more successful than other programmes in supporting small businesses.
The SEIS was launched in April last year and was designed to help small early-stage companies raise equity finance by offering a range of tax reliefs to investors who purchased new shares in those companies.
It complemented its EIS predecessor, which continues to offer tax reliefs to investors in higher-risk small companies.
John Williams, managing partner of Kuber Ventures, said the government’s Funding for Lending Scheme had not worked well because it was “reliant on third-party involvement via banks”.
“Alternative investment schemes, where the government has influenced funding into small businesses directly via tax incentives, have had much more of an impact in stimulating small business growth,” he said.
“For instance, HMRC has received more than 1,000 applications by UK companies for SEIS investment since its launch in 2012.
“The government must continue to make the investment case for EIS, VCT and SEIS genuinely compelling if it is to bolster small businesses and get the UK economy back on track.”
Mark Williams, product manager for Octopus’ tax business, said the government had been under pressure from the Labour party to increase the tax-free incentives of such schemes.
“If the government was to increase the VCT tax relief to 40 per cent, that would be positive for the small companies that our VCTs support,” he said.
“It would encourage investors further to look at VCTs. The government is not adverse to making changes to the VCT and EIS rules and when the rules have been relaxed it has encouraged investment.”
Patrick Reeve, managing partner at Albion Ventures, said the VCT and EIS sector was important for growth.
“The chancellor will be focusing on the importance of small and medium-sized enterprises as they are a key driver of growth.”
Alternative investment numbers:
1,000
The number of applications the government has received by UK companies for SEIS investment
£2.6bn
The total assets within the VCT industry, according to the Association of Investment Companies
30%
The percentage of tax relief on the cost of the shares of an EIS that is set against an investor’s income tax liability
£200,000
The maximum amount per tax year an individual can invest in VCTs and get tax relief on