The government has been urged to shake up the tax relief awarded to those investing in start-ups to provide a lifeline for UK small businesses during the coronavirus crisis.
Industry figures have called on the government to temporarily increase the tax relief available to investors from 30 per cent to 80 per cent for six months.
The group, which includes founder of Vala Capital Jasper Smith and chief executive of Wealth Club Alex Davies, wrote to the prime minister and chancellor arguing many start-ups and small to medium sized enterprises would cease to exist without urgent help.
According to those involved, incentivising private investor support and taking pressure off the public purse could deliver up to £2bn to small companies.
Investors in Enterprise Investment Schemes qualifying companies can receive a tax break of 30 per cent of the amount invested, with any income and capital gains exempt from tax.
Therefore investors who make an investment of £10,000 can save £3,000 in income tax.
But the coronavirus crisis — which has caused markets to tumble across the globe — threatens to limit those who wish to invest and hurt small businesses which may be unable to function properly during the pandemic.
Mr Smith said: “The future success of early-stage businesses is crucial for the UK economy and private investor support is the lifeline for many.
“Banks are not equipped to be able to make lending decisions to many early-stage companies. It is vital that we allow investment to flow alongside debt.”
Mr Smith said all norms were “out the window” and it was time to “save the companies that will create the foundation for recovery”.
Mr Davies said young, innovative business were currently contemplating a “bleak future”.
He added: “Without urgent help the very companies that can spearhead recovery after the virus has passed will fail, leading to a significant downturn in innovation and future economic growth.
“Providing temporary increased tax incentives for investors could be an extremely simple, fast and cost-effective way of helping these businesses survive.”
The group also urged the government to extend tax reliefs to founders and directors so they were encouraged to save their businesses and use existing EIS fund managers to allocate capital.
It stated such incentives would be “free borrowing” for the Treasury by the public and would ensure the lifeblood of innovation in the UK was protected.
Mark Brownridge, director general of the EIS Association, said: “We need to do everything possible to preserve the very businesses that represent the future wealth of the country.
“There is growing evidence of investors withdrawing from commitments due to close in this tax year. The knock-on effect will be catastrophic as businesses will be forced to take difficult and agonising financial decisions through no fault of their own.”
imogen.tew@ft.com
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