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Industry predicts EIS fundraising drop off

Industry predicts EIS fundraising drop off

Industry figures have predicted the amount invested in enterprise investment schemes will drop across 2016, following a surge of cash into schemes in the last reported tax year.

Data published in October 2015 showed that in the year 2013 to 2014, 2,770 companies raised a total of £1.5bn of funds under the EIS scheme, while in the year 2012 to 2013, 2,470 companies raised £1bn of funds.

Now, key industry figures have predicted a drop in assets for the year 2014 to 2015, as it incorporates some of the changes to EIS made by the government recently.

In July last year, new rules were introduced for venture capital trusts, enterprise investment schemes and seed enterprise investment schemes by chancellor George Osborne in the Summer Budget.

In its policy paper released alongside that Budget, the government said it would introduce a cap on the total investment a company may receive through EIS and VCTs of £20m for knowledge intensive companies, and £12m for other qualifying companies.

Luke Davis, chief executive of IW Capital, said that has had a direct effect on his firm.

“A total of £1.5bn went into EIS last year, but this will be the first year that it goes backwards. I don’t understand why you would restrict EIS. It is still a good thing if you do a management buy-out or a management buy-in.

“It doesn’t make sense - it worked well - the amount of money invested through EIS schemes has to go backwards.

“It makes it not as credible a product for advisers.”

Steven Harris, chief executive of Committed Capital, said he would expect a lesser amount in aggregate to be invested, compared with last year.

“Many clean energy companies will now no longer qualify for EIS tax relief if already receiving public subsidies – this has been a sizeable proportion of EIS investing in previous years.

“Equally, older companies may not now qualify for EIS and, in future, neither will companies not showing the potential for significant growth.”

He also pointed out that frequent changes - including the largely positive introduction of the Knowledge Intensive Companies category - may have confused investors and their advisers as to what is and is not now permissible.

Committed Capital’s view is that the aggregate amount invested this year in EIS may well fall, but the amount invested in smaller high growth businesses as a proportion and an absolute number will increase.

“We think this is what the legislation is intended for and are positive about it,” stated Mr Harris. “We would expect the overall amounts invested via EIS in the 2016 to 2017 tax year to increase provided that the macro environment for smaller businesses remains positive.”

Sarah Wadham, director general of the Enterprise Investment Scheme Association, also predicted a drop in EIS figures for the coming year, although this was not entirely as a result of changes in regulation.