Enterprise Investment Schemes  

Trade body outlines risks in EIS overhaul

Trade body outlines risks in EIS overhaul

A trade body has released a guide for financial planners following the latest changes to EIS investing, addressing the ‘new level of risk’ advisers and their clients are facing in this market.

The Enterprise Investment Scheme Association (Eisa), which represents the EIS industry, with an aim to unlock capital for UK SMEs, published its guide “EIS: Managing the Risks” after the government tinkered with EIS rules in the latest budget.

Among other things the chancellor increased the investment limits for knowledge intensive businesses and removed the option to invest in lower-risk, asset-backed EIS offerings altogether.

Eisa’s guide explains the changes and how these have affected the level of risk that financial planners and their clients face. It also highlights how that risk can be managed. 

Mark Brownridge, director general at Eisa, said there was a perception the government focus has shifted back to supporting growth investments and technology, which in turn has increased the risk profile of EIS investments.

There was also a perceived lack of awareness around how this risk has changed among advisers, he said.

Mr Brownridge said: “The risk profile [for EIS investing] has gone up slightly but that is not necessarily a cause for concern. It is our job to keep the industry informed on what’s going on as best as we can.”

He added: “A detailed survey we conducted with investors and consumers in the wake of the spring statement announcements showed that almost a third of British investors believe that knowledge-intensive companies, such as those in the energy-tech, med-tech and fin-tech arenas, are set to grow in the next year. 

“These sectors are set to rely heavily on EIS and SEIS funding, so we felt it was important to produce a guide to help explain to investors and financial planners where EIS now stands.”

Under enterprise investment scheme rules SMEs can take up to £5m in investment a year from individual investors, capped at £12m in a company’s lifetime, as long as the company has less than £15m of assets and has not been trading for longer than seven years.

The investors are given tax relief on their investments but those will be withheld or withdrawn if the company does not follow the rules for at least three years after the investment is made.

Knowledge-intensive companies, those carrying out a significant amount of research, development and innovation, can raise up to £20m over their lifetime under new rules.

The scheme has since its inception raised a total of £16.2bn for 26,000 small and medium-sized enterprises. 

Eisa’s guide is sponsored by EIS fund managers Oxford Capital, Symvan Capital, and the Kuber Ventures platform, as well as law firm Mills & Reeve.

Stephen Jones, adviser at Clear Solutions Wealth & Tax Management, said: ‘The Eisa guides are an excellent education resource. I give them to my clients to help them understand EIS better.’

carmen.reichman@ft.com